Mind the Beginner

Money, both a blessing and a curse on this planet. For better or for worse we’re stuck with it and it will dominate our lives in one way or the other. Only relatively recently I started learning about money and how to manage it. Now you probably know that there are numerous brilliant blogs about money management and frugality online. They all have the four noble truths about money in common. In this blogpost I’ll try and give you the basics of money all in one simple overview. You could see this blogpost as “Money 101″. Once you know this stuff money will be your friend.

The First Truth: Money can be spent

Well, this is very obvious and you probably do it every single day. Getting you to part with your money is what it’s all about for just about every part of the world economy. Spending more than you earn is a definite way to trouble and spending money on things you want but do not need are a sure-fire way to get more and more clutter in your home. Minimalism can not be maintained this way and if you like minimalism it’s a good idea to have a good hard look at your spendings. If something really a need? or is it jut a want and could you easily do without. Now I don’t want you to never indulge in impulse buys, just keep them in check and know when an impulse buy is only that, an impulse. Gaining control of this is very powerful and will reduce clutter (and spendings). Leaving you with more money in your control.

The Second Truth: Money can be saved

Saving money is almost always a good idea and it’s the natural choice if you end up spending less than you earn each month. Saving money can get you one of two things: a bigger reserve that will earn you interest (and we all know the power of compound interest) or a larger amount of money that can help you get something big you unexpectedly need (a washing machine for instance), note how I’m not saying something big you want. A buffer so to speak.
How far you take the savings is up to you but if you’re really into saving you might reach the crossover point one day. That elusive point when the yearly interest on your savings is enough to pay for all -yes all- your needs. How cool would that be, being able to pay the rent or mortgage with nothing but the interest on your savings. It would mean you’d have the option to stop actively pursuing an income and sit back and relax knowing that you’ve crossed over.

Reaching this point is mostly for those who work hard and save hard. Relaxing after reaching crossover almost always makes these people miserable so they choose to keep working and saving.

The Third Truth: Money can be invested

While saving will make you roughly 3% on a yearly basis if you’re lucky, investing money can and most often does generate a more significant interest rate. With some experience and know-how you could generate 10% a year, but that would mean you’d have to actively (let someone) manage your money. Investing can be done in “paper” (stock-market) which seems to be a rather iffy idea at the moment. You could also invest in real-estate, a slightly sounder idea sometimes. You could think about “flipping” homes. That is, buying a house for x dollars, spend y dollars fixing it and then selling the property asap for x+y+z where z is every last dollar you can squeeze out of it. After that you can choose to invest in another property, adding z to your investment sum. A tried and tested way of making money for anybody willing to do the hard work and taking the gamble of buying a lemon.
Investing money is roughly translated as “letting money work for you”, where saving is just letting it sit there. A bigger gamble but with potentially greater rewards. Of course flipping homes is just an example. You could invest in very small things, perhaps dabble a bit in stocks or help someone with a start-up, becoming a stakeholder or angel investor if you can. Investing is a risk, you might make a loss and you can’t have immediate access to your money. If those things don’t form a problem for you, investing is the way to go in trying to reach crossover. (They should have called it game-over…)

The Fourth Truth: Money can be donated

Yes, that’s the last option you have. (We’re not going to discuss stuffing it in an old mattress) Giving money away directly through charity can be a very fulfilling way to make an impact with your money and it’s just for this reason that a lot of people who can manage it do give away money. If you have enough anyway why not, right? You could also opt for the giving away of presents if you don’t like to give away “numbers”.

Spend it
Save it
Invest it
Donate it

Every choice has it’s benefits and disadvantages. It’s all up to you to decide what you want to do with your money. Just remember, it’s always up to you what you do with your money and don’t let anybody tell you otherwise. If you want to save, who are those people from the marketing department to tell you that you -need- that latest gizmo.

I’ll tell you one last secret about money (and things in general): If someones opinion is that you don’t matter just because you don’t own this-or-that. You should ask yourself how important that opinion is to you. You are not your possessions, never was and never will be. Walking down the path of materialism will never reach an end: One Hummer will be beat by two Hummers or a Ferrari. A Ferrari is of course nothing compared to a yacht. It’s a never ending race of ridiculousness and false needs.

Identify true needs and spend what is needed. Save, invest and donate what you don’t spend. If you consistently spend less than you earn you’re on your way to crossing over and have a buffer for a rainy day. That’s money for you, and actually it’s so obvious that I keep wondering how I managed to spend so many years not knowing.

Now you know the four noble truths about money, it’s your friend.