Managing Expenses: Discover the only 3 expenses that actually make you wealthier
When most people think about managing expenses, some sort of fear sets in.
They wonder, “did I spend too much?” or “where does all my money go?”
Or they think, “I shouldn’t have bought that…”
The bottom line? “Expenses,” to most people, is a dirty word.
However, there are actually 3 expenses that make you more money…
And, they’re just one small part of a “30-Minute Cash Flow Breakthrough” designed to help you increase your bottom line without working harder (more to come in a minute…)
#1: Rainmaking (Productive) Expenses
Hiring the right employee, getting the right equipment, creating the right marketing campaign, or joining the right mastermind group are all considered “rainmaking expenses,” and can pay for themselves many times over.
If spending $1 on a productive expense makes you $2, then the idea would be to keep spending until performance goes down.
Other rainmaking expenses keep you functioning at peak performance. For example, quality food, your gym membership, and other hobbies and passions.
And lastly, education – as long it’s applied, taking massive and unavoidable action rather than put on the shelf – can be one of the greatest productive expenses as well. This includes reading books, listening to podcasts.
#2: Protective Expenses
Protective expenses help you safeguard your family, your productivity and your way of life.
Six months’ worth of savings, appropriate insurance to cover all areas of your life, and a solid plan for emergencies all fit into this category.
You may not know this, but a hidden benefit of spending money on protective expenses is that they help you to be more productive. There’s far more room for creativity and productivity when your mind is free from the worry and stress that comes from uncertainty.
Over time, this added production will increase your cash flow and your wealth exponentially.
#3: Lifestyle Expenses
Special experiences with your family, vacations, dining out, or the latest iPhone or gadget – all lifestyle expenses – have the power to rejuvenate your spirit and help you to enjoy life along the way.
They’re part of the reason you work so hard in the first place, and they actually allow you to be more creative and productive by recharging your batteries. This, in turn, helps you increase your wealth and cash flow over time.
The only caveat to spending your money on lifestyle expenses is that they must be managed well. That means that it’s best to pay in cash, rather than to use credit.
The other expenses make you poor and miserable. This is what is termed as “PAY DAY- TO PAY DAY TREADMILL” You keep on running but you don’t go anywhere.
In the same way you allocate money for monthly expenses and there is NEVER enough for savings and future FUNDS.
1.This leads to poverty vicious circle:
Low Income level
Low Savings/No Savings
Low Capital Formation/No Capital formation
Low Returns/No Returns
Low Standards of Living
Limited opportunities for next of kin
(We should live inheritance for up to the fourth generation)
2.Exposed to financial instability
§“Low” earnings or “living” beyond means
§Poor management of personal finances
•Lack set goals
•Skewed lifestyle habits
•Uncontrolled purchasing habits
Low asset/capital accumulation
Cash flow crisis
3.Financial Literacy produce Financial Stability
Have a plan for obtaining financial resources
Plan & manage personal finances
•Plan their spending through budgeting
•Save for long term financial security
•Have controlled buying habits
Invest earned resources
Insure acquired assets (risk management)
They are in full Control of their financial future
Embrace Financial advice and research a lot.
Analyse Your Current Status
Below you will find an exercise to analyse your spending and come up with a concrete solution to avoid leaking points in your budget.
Appreciate your financial position(net worth).
Through the expense tracker identify the spending leaks and rectify them.
Use your budget to guide and control your expenditure.
Set up financial goals and identify a plan of achieving them.
After this exercise, you are now well educated to plan and set your financial road map.
Establish your monthly expenses – The fund should be equal to 3 months expenses for a start & 6 months in the long run for financial freedom
Create an account for it. Apply 40/60 rule
Clearly define an emergency
Deposit all windfall income into this account
Refund all monies withdrawn from this account
When fully funded, channel the allocation to another goal
Debt Management Fund
Identify and list all your debts
Prioritize how they will be repaid starting with those with high interest and are short term
Consider the risk and consequence of default
If possible consolidate the debts and renegotiate with the lenders to ease repayment
Build your credit score and borrowing ability
Build your social capital
Always establish the cost of money and lending conditions
You plan for your education and your spouse as well as your children and answer the following statements:
Is education important?
Duration in school ( Term)
Education environment (Formal, informal, international)
Education choice (Private, public, County, National)
University level (Public, private, abroad)
Cost of education ( Current costs, future costs; Future cost = Present cost * inflation factor)
§Funding options for the education- centrelink or self-funding
The earlier you start the better chance you enjoy your retirement, no regrets. Refer to previous lesson on “Life Time Study”
Establish your re-current monthly expenditure
Estimate retirement spending needs
Consider amount of time left to retirement date
Determine planned retirement income & most appropriate vehicles to generate it e.g. employer-sponsored pension plan, real estate, annuities and other investment opportunities.
Establish & implement a retirement plan
DO NOT SUBOTERGE YOUR LEGACY LEAVE YOUR ESTATE IN ORDER!
I read a story of how a widower left her estate at the mercy of someone else instead of her children. It was too late to fix it. Her estate was managed by court appointed trustee and I quot:
“Several areas of estate planning become more important than ever before for the surviving spouse. Whether you have been through probate or not, whether you have a will or other estate planning documents in place or not, YOU MUST REVIEW, UPDATE, AND/OR CHANGE what you have in place now.
It is more important than ever for you to have an estate plan. If you become disabled and have not planned properly, a court-appointed trustee will handle your affairs. If minor children are involved, the court becomes their parent.
James and Annie were both in their early 80’s. They had farmed all their lives and had several hundred acres and sizable deposits in several banks. Their estate was well over $1,000,000 and estate taxes would be substantial. No estate plan was in place and they were very close to their only son, James, Jr. Annie took care of the home and finances. James took care of the cows and the farm. They had visited with their financial planner and attorney three times over a six month period. The attorney gave them a list of information needed to prepare the documents (legal descriptions, charities, dates of birth, etc.)
The following week Annie suffered a massive heart attack and did not survive. Her daughter-in-law found a shopping bag at the foot of her bed containing the information needed for their estate plan. But it was too late.
No one likes to think about planning his or her estate. Estate planning is the easiest thing in the world to procrastinate doing. However, you must do it for both you and your loved ones. You need to be the one making the decisions that can best take care of yourself and your family. The following paragraphs may help guide you but ultimately you are the one responsible for making those decisions.
Keep in mind that a good estate plan considers your goals, your needs, and your objectives by giving what you have accumulated to whomever you want, designating when you would like for them to receive it. This needs to be accomplished with the least amount of court fees, attorney fees and estate taxes.
We have looked at wills and probate which generate court costs, executor and attorney fees. If you must go through the probate process, have the attorney outline the fees and estimated total cost up front. The attorney who wrote the will does not have to be the attorney who probates the will. Obtain at least two, preferably three estimates”. David E. Taylor
Do you have named guardian for your children?
Do you have named beneficiary for all your investments?
Do you have a plan to distribute your assets?
Do you have a will?
Are all your documents properly secured?
DG Institute offers this service at a competitive rate to its DGI community members. If you need to set up one, leave a comment and I will give you more details on how to get started!
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