In this article we will discuss why money is important. In addition, we will talk about how to save money, how to budget and how to build wealth.
Many people in America are drowning in debt, have no savings and no investments. We will show you why money is important and how to begin paying off debt quicker, save money faster and learn about investing. We will also touch on investing subjects such as commodities, stocks and real estate.
The good news is that you can begin growing your wealth immediately once you understand why money is important. Learning to be disciplined and make small sacrifices today can mean more financial security for the future.
The primary reason why money is important is that money gives you options. For example, if you have ever felt powerless or hopeless, it was probably related to a lack of money. Some people are quick to criticize those who seek their fortunes; however, having money provides you with options. Having extra money not only gives you options, but it provides you the power to save money on purchases by not using credit, which is why money is important.
The first and perhaps most important tool in your finance tool box is budgeting. The point of budgeting is to gain control of your money. You want to keep more money and pay less to others. That’s how you win at the game of money and budgeting is a powerful “hammer” in your tools on finance.
While creating your budget and assessing your financial situation, it is likely that paying down debt will be critical to your success. You must begin understanding what has brought you to this point in life. Begin to look in detail at how you spend money and create a budget. You will also start making plans and setting goals. Finally, you will learn discipline and begin using proven methods for keeping more money.
Create a Budget Now
One of the best tools on finance is learning to budget. That is, it’s important to keep track of your money. A budget can help you track and control your money. This is one of the reasons why money is important. Having a balanced budget means spending less of your paycheck. Preferably, you will have some money left over to pay off debt and save for the future. In short, everyone should budget, whether you are a large corporation or just one person.
Eliminate Unnecessary Expenses: Designer Clothing, Eating Out, Overdraft Fees and Shopping Sprees
In many cases, one of the tools on finance is through frugal living. This simply means spending less than you make. Moreover, creating a simple monthly budget can assist you in determining whether you are meeting your goal. In addition, learning to be frugal can help you steer clear of debt in the future. For example, when you eliminate extra expenses that are unnecessary, you will have more disposable income available for saving. As a result, saving money from disposable income can help you better understand why money is important.
It is helpful to make a list of what expenses are needs and wants. For example, paying for electricity is needed; having a spa membership is a want.
In addition, you will also want to figure out ways to cut spending. This will help you save more money quickly. Ideas for Budget Items to Cut:
- Memberships (Spa, Gym, Entertainment, etc.)
- Subscriptions (Magazines, news, etc.)
- Eating Out
- New credit card spending
Stop Using Credit Cards
Another one of the tools on finance is discipline. If you are starting a budget, you probably have credit card debt. The problem with credit card debt is not the debt, it’s the interest. First, every day that you maintain a balance on your credit card, interest compounds. Compounding interest works against you when you’re trying to pay off debt. Getting rid of credit card debt requires discipline to spend less and save more. In addition, it will help you better understand why money is important.
How Budgeting Helps You:
- Improve your credit score
- Save for emergencies
- Save and invest for retirement
- Stop wasting money and curb bad habits
- Promote a healthy, meaningful lifestyle
- Buy a new home or upgrade your existing home
- Obtain financial freedom
Creating a Budget: Step by Step
Determine Your Income, Expenses and Calculate Disposable Income
Having a balanced budget means spending less of your paycheck. Preferably, you will have a significant amount of money left over to pay off debt and save for investing. In short, everyone should budget, whether you are a large family or just one person.
One of the best tools on finance that we will be describing is a monthly budget. Many people pay bills once per month and may get paid once or twice per month. In a simple example budget, you can create a column for expenses and a column for income. At the bottom of the page, you can total each column and the difference in the totals is either how much money you have left over or how much money you are short at the end of each month.
Step 1: Determine Your Income
Figuring out what your income is for the month is usually pretty simple. If you get paid every two weeks, then your income is the amount that gets deposited into your bank account. This is the amount that is left over after taxes are taken out. Make sure to account for each time you get paid in the month. If you don’t know what you get paid, you can look at your W-2 Tax form. Knowing what your income is and where it goes can help you better understand why money is important.
Step 2: Determine Your Expenses
Determining what your expenses are will take more time. There are several ways to determine how much you are spending each month. One way is to keep receipts and use bank statements to figure out what was spent each month. The second way to determine what you spend is to begin writing down each expense as it comes along during the month.
Step 3: Put all the Budget Pieces Together
Now that we know what our expenses and our income are, we can add up everything to determine if we are over or under budget. The goal of having a balanced budget is so that our expenses are less than our income. For example, if your income is $2,000 per month and your expenses are $1,500 per month, then you have $500 leftover each month ($2,000-$1,500 = $500).
Cut Expenses and Control Spending
Budget Not Balanced? Remove Expenses (Wants) from Your Budget: Memberships, Subscriptions, Etc.
If you are having trouble finding extra money in your budget, it may be time to cut expenses that are considered “wants.” No matter what kind of budget you have, it’s vitally important that you cut expenses. First, start by finding areas in your life where you can make cuts. It is helpful to make a list of what expenses are wants and needs. For example, paying for electricity is required; having a spa membership is not.
Learn to Live Below Your Means
Reduce Bad Habits like Eating Out, New cars and Designer Clothing
It’s critical that you form good money habits as you learn why money is important. In many cases, frugal living is the cornerstone of wealth creation and building wealth. This simply means spending less than you make. A simple monthly budget can assist you in determining whether you are meeting your goal. And these good habits can carry forward for a lifetime.
Unfortunately, living frugally is not popular in the 21st century. Popular culture dictates what “normal” consumer behavior looks like. And it’s considered normal to go out and spend money at restaurants, on vacation, etc. In addition, it’s “normal” to buy a big house and drive a new car. Creating the best budget planner will help with this.
Financially successful people don’t ascribe to normal behaviors. Those who attain financial success only purchase what is needed. They don’t buy new cars or fancy things. As a result, the extra money saved from this frugal behavior is put to work in investments.
Beware of Credit Cards and Debt
Credit Cards Can Create Painful Financial Lessons for You by Overspending and Interest
One dangerous lesson to learn is overspending on credit cards. In the modern era, gaining access to credit is far too easy.
Having a credit card can be a double-edged sword for anyone. First, using a credit card can be a learning tool about how debt works. In addition, you can learn about paying bills each month. However, there’s a risk that comes with credit: overspending. When you spend more money than is allowed on the credit card, or spend more than can be paid back, it can be a painful lesson in finance. But, sometimes difficult lessons can be valuable and last a lifetime.
If you make a mistake with a credit card, or overdraft an account, it can become a learning tool. Use the situation as an opportunity to learn from the mistake and implement better budgeting habits. Everyone learns the lesson of debt and compounding interest when we have to pay back what was borrowed, plus interest.
Most Americans Don’t Save Enough Money; Saving Requires Sacrifice
According to Business Insider, the average American Family has approximately $40,000 put aside in savings and investments. While this may sound like a lot of money, it’s not. Think of your monthly expenses and then consider for how long you could live on $40,000. Finally, the answer is you need much more money than you have now.
Saving money can be difficult. In many cases, saving requires that you make sacrifices in your life. For example, you might have to continue driving an older car instead of buying a new one, or do home repairs yourself instead of calling a professional for help. Obviously, no one enjoys making sacrifices. However, saving money can help you better understand why money is important.
Create the Habit of Saving Money
Saving is a habit that can be learned over time and simply requires discipline. Become determined to reach your financial goal. Your personal determination to learn how to master the tools on finance will help you keep more money.
In addition, develop good habits of saving money. In the classic personal finance book, “The Richest Man in Babylon” by George Clason, the author implores the reader to set aside at least 10% of your earnings. This is a great rule of thumb for saving and investing because removing only a fraction of your income each month will likely not even be noticed or missed. Yet, this small amount of money is the seed needed to grow wealth.
Set Goals: Learn to Save Money Every Paycheck
Put Aside 10-15% of Your Regular Income for Investment
One of the habits that are important related to tools on finance is learning to save some of each paycheck. Make it a personal goal to save 10-15% your paycheck each month. After a short time, you will realize that you don’t even miss the money.
Make saving 10-15% of each paycheck easy by setting up an automatic money transfer to their savings account. For example, each time their paycheck is deposited into the checking account, have an automatic transfer set up that moves money into the savings account. Some people find it helpful to have a savings account that is in a different bank. This reduces the temptation to spend savings.
Saving a small portion of your regular earnings is far from a new concept. Financially successful people have been doing it for hundreds or thousands of years. Saving can be a great tool when it comes to money management for you. Read the Richest Man in Babylon to learn more.
Establish Goals, Assess Personal Finances, Determine Risk, Develop Timeline and Begin Funding Your Investments
Learning about the investing process can be challenging if you are new to investing. In the old days, investing was simple: stocks, bonds and real estate. Today, investing has become much more complicated with hundreds of choices that may be very complicated to understand.
The good news is that your investment portfolio can be as simple or as complicated as you want it to be. In addition, you don’t have to be rich to begin investing. In this article we will lay out a clear, 5-step approach to the Investing Process you can use to organize how you invest and master the tools on finance.
Summary of Investment Process
- Establish Goals
- Assess Personal Finances
- Determine Risk Tolerance
- Develop Investing Timeline
- Begin Allocating Funds for Investment
Step 1: Establish Goals
The first step in the Investing Process should be to determine what your financial goals are and what you wish to accomplish. Where do you see yourself in 10, 25 or even 50 years? The average life expectancy for Americans is around 78 years. However, you may have family members that live to be in their 90s and beyond. If you retire at 65 and live to be 95, will you have enough money invested to last through your retirement years? Clearly, investing for your retirement can be a critical part of why money is important.
Write Down Your Goals
If you want to retire at 65 and move to Portugal, then included this as part of your written goals. Begin by creating a journal, a spreadsheet or plan where you list exactly what you have planned for the future. This serves two purposes. First, writing down your goals makes what you want explicitly clear. It gives you a starting point and also provides you with the details that you will need to determine how you will reach your goals.
Second, the purpose of planning out your financial goals on paper (or electronically) is that you are signaling to yourself and others what you want. History has proven that the psychology of desire and intention is a powerful tool in accomplishing goals. Many wealthy investors credit their personal wealth and success to the philosophy outlined in the book, “Think and Grow Rich” by Napoleon Hill.
Step 2: Assess Personal Finances
Learn to Budget, Save, Pay Off Debt and Live Below Your Means
Budgeting is one of the critical steps that can help you take control of your life and control personal finances. In addition, preparing a budget allows you to not only know where your money goes, but also allows you to plan where your money will go in the future. Finally, it’s important that your money works for you, not against you in your investments.
Step 3: Determine Risk Tolerance
What is Your Level of Risk?
Active Versus Passive Investing; Aggressive Versus Conservative Investing
Determining your risk tolerance is an important part of the tools on finance. To start, you must determine what style of investor that you are. First, the major categories of investment include active management or passive management. For example, a portfolio manager can determine what investments are in your fund and make decision for you using passive management; however, active management means that you reserve more control of your investments and perhaps you even use online services to trade individual stocks on a daily basis.
Second, you must determine if you are an aggressive or a conservative investor. Aggressive investing is utilized by those who want to take more risk and capture greater returns. This type of investing is considered acceptable for younger investors and for savvy investors who want to dedicate a small portion of their portfolio to higher risk. Conservative investing is a lower risk style of investing. Returns tend to be lower than the aggressive style, but come with lower risk. This style is best for those that desire lower risk and those who are getting closer to retirement age.
Step 4: Develop Investing Timeline
Estimate Retirement Age and How Much Money You Need to Retire
How old will you be when you retire? This is one of the questions that you want to answer during the Investing Process so that you can gauge your progress toward retirement. In addition, you can set goals for how much money you need when you reach the milestones of 30, 40, 50 and 60 years old and so forth.
Determine How Much Money You Need to Live on
You Will Need 70-80% of Your Current Salary for Retirement Expenses
While thinking about budgeting, take a closer look at how much money you need to live on each month. For example, what basic amount of money do you need each month to cover expenses? You need enough money to pay for a place to stay, food, electricity, etc. Don’t include things like vacations, luxury items or entertainment. Once you determine how much you need to live on, you can then start to figure out what retirement expenses look like.
Another common rule of thumb for estimating how much money you need when you retire is the 70-80% Rule. In other words, many experts believe that you will need at least 70-80% of your current income to make ends meet. For example, if you bring home $3,000 each month, then you will likely need approximately $2,100-2400 each month in retirement. This is a realistic way of estimating what you need to retire if you don’t want to do complicated calculations or spend a lot of time on the topic.
Step 5: Begin Allocating Funds for Investment
This step is the final step in the investment process. First, you will begin depositing money into your investments. The easiest way to start is to allocate a percentage of your earnings each month. You will then review your investment portfolio each year with your investment advisor to determine whether it requires changes. Your investment advisor can help you through the process of investment and help you better understand why money is important.
Ideally, your investments will be divided into groups, with a certain percentage of your total investment allocation going to each group. For example, you may have chosen to invest in stocks, real estate, precious metals and cryptocurrency. You may be investing 50% in stocks, 25% in real estate, 20% in precious metals and 5% in cryptocurrency. Obviously, the percentage allocated to each group you choose will be determined based upon your risk tolerance.
Many wise investors use “dollar-cost averaging” as a part of their Investing Process. Dollar-cost averaging is simply dividing up the amount of money you have to invest over a longer time frame. For example, let’s say you have $1,200 to invest in the year 2021. Then each month, you will invest $100 ($1,200/12 months = $100/mo.). Your $1,200 investment would then be dollar-cost averaged over a one-year period.
This investment methodology means that you invest the same amount of money each week or month, no matter if the market goes higher or lower. Dollar-cost averaging takes the emotion out of the Investing Process and simplified investing. It also prevents investors from making bad decisions.
If you don’t know how much to invest, then start out with a simple plan. Each month, divert 10-15% of your earnings to investment(s). An example would be investing in a 401(k), Investment Retirement Account (IRA) and/or real estate. Year after year, your money will grow and work for you during the Investing Process to create wealth. Seeing your wealth grow year after year will help you realize the power of compounding interest and realize why money is important.
No one can predict the future to know what investments will do well and which ones will fail. As a result, we can improve our odds of success in investing my diversifying our investments. Diversification of investments means spreading your money over different investment sectors. For example, you may want to have some stocks, bonds, real estate and precious metals in your investment portfolio.
Find a Good Financial Advisor
Many of the topics discussed regarding personal finance and investment complicated and you probably need the assistance of a financial advisor. A financial advisor can help you make better informed decisions about how to best invest your money. Be careful to select an advisor who is knowledgeable in their industry and who has a proven track record regarding investment.
Unfortunately, many “financial advisors” are simply sales people who know very little about investment and are simply trying to earn a commission by locking in your business. Do your research to find the best candidate. In some cases, good financial advisors charge an upfront fee for consultation because they do not earn a commission from helping you with investing.
Real Estate Investing
Many experts are predicting the real estate market in 2021 will be in decline. However, after the COVID-19 lock down in the United States in 2020, things seemed to calm down. At the beginning of 2021, the Wall Street stock market prices were higher, real estate prices were going up in many places and things seemed to be improving.
Americans are Moving from States Like New York and California in Large Numbers
It’s important to understand that real estate prices are going down in some areas and up in others. However, there will be winners and losers in the housing market crash 2021. For example, it appears that in the short term, a divided real estate market may present itself.
Current data being reported in the media shows people leaving larger coastal cities and going to smaller inland cities. For example, Californians have been moving out of California to places like Washington, Arizona and Texas in record numbers. This is not a new phenomenon and the trend appears to be gaining speed.
Real Estate Investing Step by Step
On a positive note, 2021 and 2022 may be an opportunity to begin investing in real estate. In addition, never before has investing in real estate been easier. Investing in real estate can be a great piece of your tools on finance. Today, anyone can purchase investment houses for generating passive income. In addition, you can use the “BRRRR” method to leverage multiple properties so that larger passive incomes are generated from your investment houses. BRRRR stand for buy, rehab, rent, refinance and repeat.
Step 1: Buy Investment Property
Buy Undervalued Properties and Calculate Profitability Before Jumping In
Once you have narrowed down the kind of property you want to specialize in, such as apartments, duplexes or single-family homes, it’s time to buy. First, you will want to search for investment houses that are undervalued or significantly discounted. Many investors credit their profit margins to buying investment houses at prices that are significantly below the potential market value.
Step 2: Rehab Investment Property
The next step in the BRRRR process is to begin repairing and renovating (rehabbing) the investment property. The object of the rehab is to quickly conduct repairs that will make the home appealing, safe and add value to the property. In addition, you want to rehab the property as quickly as possible. Furthermore, the quicker the process of rehab is complete, the quicker you can begin earning money from rental income.
Step 3: Rent Investment Property
After completion of the property rehab, it’s time to find a tenant for your property. A good tenant will consistently provide income (in the form of rent) for your investment. Furthermore, a good renter will take care of your property and not allow it to be damaged. Carefully determine what the market rental rate is for your area. In turn, this will ensure that you quickly find a renter and the property doesn’t sit vacant for months. In addition, you will want to properly vet potential tenants to make sure you find renters who are the best fit.
Step 4: Refinance Investment Property
Challenges of Working with Lenders, Obtaining Financing and Economic Cycles
The third “R” in the BRRRR process is refinance. After rehabbing the property and finding a renter, you can begin to look for a lender. The refinancing process means you will be working with a bank to borrow money based upon the remaining equity in the property. Essentially, you will have the property you purchase appraised and approach a bank to begin refinancing the property. You can later use some of the money from your refinance to purchase a new investment property.
Step 5: Repeat the Process
If everything lines up correctly, the BRRRR method will be a success. You will find an undervalued property, buy the property, rehab and rent it and then obtain financing that you can use to buy the next property. You can then repeat the process of acquiring investment houses. If the BRRRR method is successful, you will be generating a net profit each month.
Focus on One Type of Real Estate, Such as Single-Family Homes, Duplexes, Apartments, Etc.
One of the recommendations made by real estate guru Ken McElroy is to narrow down the kind of rental property you want to buy. Many investors get caught up in trying to find the perfect property. However, they can get bogged down in the minutiae and complications of searching through so many different kinds of properties. This can lead to mistakes or errors, which means lost money.
Instead, McElroy recommends focusing on one particular kind of property for investment, such as only buying apartments or only investing in duplex properties. Narrowing down your focus on one type of property will allow you to become a true expert in that property type. In addition, you will automatically narrow down the list of properties that are for sale to a manageable number.
Many Investors Believe that Gold and Gold Mining Stocks Will Perform Well in the Future
The gold mining industry has been overlooked for many years. Moreover, precious metals have been unpopular and considered irrelevant. Since the 1990s, investors have been advising others to invest in stocks for pensions and 401(k) investments. In short, this advice was largely correct. As a result, Wall Street has hit all-time price levels in the past 20+ years. However, things may have shifted in 2020. Consequently, could this be the time to invest in goldmine stocks?
Gold Has a Limited Supply and Growing Demand
The Supply of Gold Is Finite; Demand for Gold Includes Industry, Jewelry and Money
There is a limited supply of gold on Earth. Moreover, gold miners throughout the world have a finite quantity of gold available for mining. At some point, the amount of gold removed from mines will diminish and become zero.
At the same time, gold demand continues to grow. For instance, gold has many uses in technology, jewelry, medicine and money. Jewelry made of gold has been popular for millennia. In addition, gold continues to grow in demand and popularity, especially in Asia. In fact, 70-80% of gold mined today goes to create jewelry. All of these factors influence the gold price forecast.
Also, there are many industrial uses for gold including electronics, aerospace and medicine. For example, gold is a very efficient conductor of electricity. This property is utilized in many electronic components such as cell phones and computers. In addition, gold is a superior element to work with in dentistry. More important, gold is non-reactive, malleable and has anti-bacterial properties.
Gold in Your Portfolio
It is common to hold anywhere from 5-10% of an investment portfolio in gold. In fact, there are some very large international investment portfolios that hold as much as 30% of assets in gold.
Buy Gold as Physical Coins/Bars or Goldmine Stocks
Investing in gold has never been easier. Gold merchants and brokerage firms are competing for your business online. If you want to purchase physical gold, you can do this at your local coin shop.
Another option for purchasing gold is buying online. Buying from a website has become more secure in recent years, but you must do diligent research to verify the buyer. Only buy from established suppliers that have been around for a long time and have positive feedback. Preferably you can get a recommendation from a friend.
Finally, buying gold stocks is just as easy as buying stock in GM or Amazon. Many online brokerage firms offer the ability to buy these shares for a reasonable fee.
Plan of Action
Wrap Up on Why Money is Important
Many successful investors have realized why money is important and have made it a priority to get more money. Learning what has worked for other successful people is the easiest and most secure strategy for success with money. Moreover, successful people get up early each morning and focus on their goals. Saving and investing money is a priority to them and their focus is on earning and business. Many successful people make time for self-development activities, such as exercise and meditation. And they make these habits part of their daily ritual.
Never forget that perseverance is the key to success. When you develop discipline around saving and investing, you will be successful at understanding why money is important. However, success doesn’t happen overnight. Be consistent and persevere in your quest to harness the tools on finance.
Want to learn more about saving and investing?
It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.
In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. Moreover, we try our best to keep things fair and balanced, to help you make the best choice for you.