Why Your Lender Won’t Teach You How to Manage Money
Lenders do not teach you how to manage money because they benefit from debt resulting from money mismanagement. And there is nothing wrong with it. They offer you help in the form of a loan. Right?
Why Lenders Do not Teach How to Manage Money
Wrong. Since you are an adult who is responsible for everything what happens to you, the only help you need is ….your own.
Moreover, the only way you can succeed if you understand the above wisdom.
We all make mistakes but only those who own up to them can find solutions, fix them, and succeed.
On the contrary, if you expect someone to rescue you, you are in for a loooong wait, most likely, that of the length of eternity.
Speaking from experience, health and wealth are two things that you should manage yourself, not your doctor and your financial advisor respectively.
You may need their help occasionally but only to ask specific questions when you know how you feel and know your life values to invest your wealth accordingly.
Otherwise, you are solely responsible for the state your body and your mind, and you financial success.
Debt is an Asset to….. the Lender
The term good debt must have been created by people who benefit from it.
Lenders and big banks profit from interest calculated off the principal loan amount. Interest provides income to them.
For you as a borrower, debt is anything but good. I know, I know: at a low interest rate with a good cash flowing assets debt may become profitable if you cannot afford to buy rental real estate with your own cash.
You argue that inflation will depreciate the cash at a higher rate than the interest rate you can get from a bank. A side note. Private lenders require a larger down payment and charge higher interests.
Furthermore, in order to evaluate investment risk, including debt you are willing to undertake, you must consider the context.
For instance, buying real estate now in most geographies is a bad idea. Markets do not go up endlessly and they must come down in a 100% of the cases.
How to Manage Your Own Money
#1 Create a Budget
To build wealth you must know where your money is coming from and where it is going. To cap your spendings you need a budget.
#2 Get Debt Free
Debt is an asset to …your lender. If you are confused about the credit score, ask yourself why you need it. The only reason you need a credit score is to borrow more money.
If you have assets and cash, you do need a credit score. Do not borrow more money so you can have a high credit score and to make others rich.
Pay off all your debt and learn how to acquire assets so you do not have to ever borrow money.
While you are paying off your debt, set up an emergency fund which has an untouchable amount of $ 2,000.
You have to familiarize yourself with the definition of emergency.
Budget breaking and poor planning do not constitute an emergency.
Dave Ramsey suggests to have an emergency fund of $1, 000 while paying off debt . I find it too conservative and has to be determined on a case by case basis depending on the cost of living in your area.
# 3 Build an Emergency Fund
You need an emergency fund that can cover six to twelve months of living expenses to ensure you do not sabotage your financial freedom goals.
If you have enough accessible cash, you will not need to turn to debt. In fact, you will not feel emergencies when you have a cash cushion.
#4 Stay Out of Debt
The secret to wealth building lies in the habit not in your willpower when you constantly drive yourself in unfortunate situations that leave you broke.
#5 Invest in Cash Producing Assets
An asset is an entity producing cash flow. On the contrary, a liability is an entity that needs cash flow to be sustained.
Wealthy people use assets to buy liabilities. Poor people get a job to buy liabilities.Most common assets are:
- Rental real estate
- Dividend paying assets such as stocks, bonds, and options on precious metals
- Royalties from intellectual property.
Successful money management lies in your habits and your mindset. You should have a mindset of the few to be wealthy because most people are not wealthy, not even financially free.
Therefore, you should not do what everyone else does if you want wealth.
The Money Management Plan
Cornelius Vanderbilt left a $104 million fortune to his heirs in 1877. 92 years later his heirs gathered for a reunion at a family estate.
There was no a single millionaire amongst them.
On the contrary, Mayer Rothschild did not even have a fortune close to that of Vanderbilt’s at the end of his life to leave to his heirs. Instead, he left a money management system that enabled his family to amass a fortune estimated between $1 trillion to $100 trillion.
Money management requires a system, a plan, we can follow through to build wealth.
Most of us earn over $1 million in a lifetime, very few get to keep it. Taxes steal a lot of income from the uneducated.
Wealthy people use tax laws to their advantage to minimize taxes legally and to protect their fortune. I will discuss how you can reduce taxes next week.
Until then, stay nimble.