How the financially stable think?
By: Ajay Kashyap
Tags: Money Management, Saving, Planning, Financial Planning

Let us take an example of how 1000 dollars given to a man who is wise with his money and the same 1000 dollars given to a man who is unwise with his money, what would they do? The wise man would make that same 1000 dollars to 10000 dollars, and the unwise one would return with an iphone in his hand and claims it as a “necessity”. A spendthrift is often ludicrous and exuberant when he’s given some money.

Photo by Alexander Mils on Unsplash

When I was a kid I often used to shell out money and go broke within the first 20 days of the month itself, and used to beg for money from my parents. As the saying goes “nothing’s too late in life to learn” came handy with my situation and I started saving money and invest it in a way that it would give some returns over the long term. Now, I don’t worry too much about my finance and manage it. At one point of time everyone’s thinking must be “okay, I can manage my bills, I can manage my car fuel, or I can afford this trip.” but the thinking is like “oh no, I cant manage this or that right now”. That is where people don’t even care to think about how poor they are in financial planning.

How to manage finance efficiently?

A man earning 60000 dollars a year, would approximately get in hand salary of 4300 dollars after the federal tax and the state tax. Considering that with all the commitments he has he would spend 3500 dollars towards his monthly expense. The remaining 800 dollars play a pivotal role here:

Wise man: A wise man would often think of investing the 800 dollars in S&P500 index fund if he’s a risk averter or would go for direct equity stock investments with dollar cost averaging.

unwise man: This man would be waiting for a weekend getaway or investing heavily on depreciating assets like phones, cars , mortgage and so on.

“Financially stable think of save to invest policy, whereas others think of save to buy.”

When it comes to managing finance of one’s own the points to be noted are:

Never invest on depreciating assets. Quit smoking- This might sound personal to some of us, but the hidden cost of smoking 2 cigarettes a day is approximately 1000 dollars annually, and the opportunity of making it 10000 is diminishing YoY. The 1000 dollars invested in appreciating assets till the age one retire would be worth more than 2.5 million dollars. Constantly save money to invest- Before spending the money think twice whether buying the item is worth or not? If yes, don’t back off and buy instantly, if No then don’t turn back to buying it. Peer group : Peer group maybe directly or indirectly proportional in everyone’s lives, but when it comes to money it is in fact directly proportional. Good peer group often talk about investments and starting a business, whereas bad one’s are often procrastinating their plans, weekend getaway every week an so on.

What is the mentality of financially stable?

Financially stable people often tend to have experienced life without money, or they would have learnt the art of investing by mixing with their peers or from books. In the book ‘Rich dad poor dad’ Robert Kiyosaki says

“The rich prefer luxuries last, whereas the poor and the middle class prefer luxuries first.”

This saying answers how the financially stable think, and they often depend on the factual data provided or act upon the facts of how the money works, whereas the people who are not good with finance would sleep walk their entire lives.

On what will the financially stable invest in?

One who is financially stable invests in:

Themselves: They attend seminars, business webinars, and often spend a great deal of time in reading books. Money making investments: they often invest in stocks, bonds, ETF and so on for their financial independence and are very well aware of the scam of 401k. Networking: Networking plays a major role when it comes to financial investments or their life.

We are all well aware that inflation is slow poison and is going to kill us all with sufferings and ruefulness. To avoid this one has to invest in some assets, but not liabilities. A person should develop the ability to think and act according to his financial situation, A financial literate would prefer to invest in some assets before buying a Car.