uccess With Money
uccess With Money
Your Personal Guide to Achieving Success With Your Money and Your Life
Our most important business, known generically as “You, Inc.” has gotten off to a good start if we have mastered the first four management skills: goal setting, planning, organization, and record keeping. Now we need to complete the package by learning the other three: allocation of resources, evaluating, and decision making.
Without my saying it, I think most people would see a difference between the first four and the last three. The former skills are more generally used in all of life and can be more easily applied to financial areas. The latter, except for decision making, are not so common.
Even with decision making there is a considerable difference between dealing with financial areas and dealing with other areas of life. To be successful with money it is especially important to become effective in applying these last three, less developed skills in managing our own financial affairs.
There is possibly no area where you can do more to change your financial life in a dramatic way than you can by learning how to allocate your resources on a personal level. In the business world this is a given. In personal finances it is almost unheard of. In fact, many people will respond to the suggestion with a one word question, “Huh???” Perhaps you are one who is still wondering what in the world I am talking about. If so, pay attention. You are about to learn something really powerful.
Getting in control of your money is the key to everything. All of the ideas we talk about are only talk if we cannot make sure that the money we have coming in actually goes where we really want it to go.
We will have to be somewhat specific in our discussion here to make it clear just what we are talking about. In this discussion resources primarily means income. Most of the time this is cash as with a paycheck or Social Security check. You allocate this money by using some organizational method such as putting your income into a checking account or into a wallet from which individual expenses are actually paid.
The essential element is allocating or putting a specific amount of money into each specific spending account in such a way that it is easily and clearly manageable. If, for example, you need $200.00 weekly for food and other household items you could put that amount each week into a certain checking account or wallet and use that fund for that purpose alone. You will always be able to see what is available and always avoid overspending.
There are many methods that I use and you may come up with others I have never heard of before. In fact, one of the reasons that we read little about this subject is that no one method works for everyone. It is essential that you learn what will work best for you. In most cases any one individual will be using at least three or four different methods at any given time. Experiment a little. If you find one approach doesn't work well for you, try another until you have found an easy, simple, and effective way to allocate all your income to specific uses.
The important thing is to keep working at your systems until all income is allocated in an effective way. All expenses must have a payment source and each source must have adequate funding. When you reach this point, with some excess every month allocated to long term savings and investments, you will be in total control of your money. And your success with money will be guaranteed.
An important part of any business is evaluation. Bean counting, some people call it. It is just as important for you to learn how to measure and evaluate your personal finances.
When a business loses track of things like cash flow they get behind on payments to suppliers and can't get the stock they need to sell their customers. Or even worse, they can't pay employees on time and they quit. Soon they are out of business.
When individuals lose track of things like cash flow they get behind on payments, lose credit standing, end up paying high interest rates on credit cards and often end up far in debt or even in bankruptcy. And they may not even see it coming.
Many people suppose that for a business the net profit at the end of a given month or year is the most important measure of business success but other measurements may be more significant. Net worth over time for one thing. Sometimes even net worth can suffer, as for instance in the construction of a new facility, but the net effect of increased business may prove financially beneficial over time.
The same is true for an individual. Training for a new job may be an expensive investment but certification for work in some special field may produce a much higher income. For this reason, as you explore evaluation or measuring skills you need to look at several different methods, plan to use several, and always be open to consider unusual circumstances. But be cautious, however. It is easy to rationalize over spending which has little honest justification.
What should you measure?
Finally, use your measurements constructively. Don't beat yourself up over inadequacies or shortcomings. Use the information instead for planning. Let it provide occasions for celebration.
Finally, it is essential to learn effective decision making skills. There are many factors that affect good decision making. Unfortunately, many people (in fact most people) never develop these skills and as a result make many terrible financial decisions.
Possibly the most important advice about decision making is the old adage to first of all trust your gut! In spite of the fact that people consistently get into trouble by ignoring those internal signals that something just doesn't seem right about a financial deal of some kind, most people keep on going on anyway. And almost every time they live to regret it.
If a car salesman seems a little suspicious, make an excuse and get out of there! OK, that's obvious. But what if you get a feeling a financial adviser is looking out for himself more than you? Or what if you get the feeling that your CPA doesn't really know what he is talking about? It is no different. Just say you will think about it and get out. Trust that little voice anytime it suggests something just isn't right.
The second key to good decisions is getting good information. We hear every day how we live in the “information age”. But while information is easily available, most financial decisions are made without even the most fundamental knowledge required to make those decisions effectively.
Sometimes getting the right information is as simple as checking Consumer Reports. Recently we needed to replace our dishwasher. A simple check showed that one of the best models was also one of the least expensive, less than half as much as the only washer rated higher.
A key guide to information gathering is to devote adequate time to research depending on the importance financially of the decision. A woodworker who might devote a lot of time researching which chisel to buy might buy life insurance knowing no more than what is read in an ad or recommended by a salesman. A cook who might devote considerable time to selecting the right cookware, having decided on the need to open a retirement account might just ask a personal banker's guidance and do nothing more to investigate options.
But even if you spend a lot of time gathering information, it is easy to be mislead. If you were to determine you need an air purifier you could go to the internet and look for reviews. Sounds like a good idea and it is. But beware. Most of the independent sounding organizations rating them may be nothing but schills! They may be sales presentations in disguise. Some of the very worse products may be given high rankings. Again, do searches with domains limited to edu or gov for more reliable information. And don't think we are just talking about air purifiers! We are talking about all kinds of products and services.
Learn to ask yourself questions and then seek out the answers. For example, is ARP an organization for older people? Or is it a front for selling insurance? And in any case does their focus on older people mean their insurance offerings are better for the elderly than what others offer? Do I have an opinion? Sure, but you don't need and shouldn't even want it in particular. If you are thinking about insurance get some facts.
There are many other keys to effective decision making. Information must be organized, pluses and minuses balanced and options compared. And there are numerous structures for guiding decisions. Look into it.
Now, with this and the previous article, we have explored the essential seven management skills. It is important to learn about them, but it is more important to learn how to effectively put them into practice.
There is a lot of trial and error to developing skills. Remember, none of these can be just adopted overnight. Skills are all developed through practice. A long time commitment is required for mastery with any one of them. Try, make adjustments, and try again until you become truly skillful in each one.
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