If you want to become financially independent – some money rules are essential to understand.
Without further ado, let us jump into the list of rules.
Use Money as a Tool
The first rule that you will want to understand about money is that money is just a tool. Money is not inherently evil – this is nothing but a wrong idea. While money can certainly impact some people’s morals – the truth remains that money is simply a tool that can be used for good and bad.
You could do great things with money – you could donate to the homeless – or you could lose it all playing casino. Just understand this simple rule about money; it can be used for good and for bad.
You Don’t Take Money to the Grave
The next point you will want to learn is that no one takes money to their graves. Of course, you will want to be mindful about how you spend it – you will want to be strategic about it by following a budget. Click here if you want to know how to save money.
But – it is essential to know that once you are dead –your money won’t be of no use to you. So, while you are alive, you will want to ensure that you are using your money, and you will want to draw a defined line between saving money and making sure that you are building a good and stable financial future.
You will also want to enjoy some of your money or some of the assets that you have. Instead of living a frugal lifestyle, you will want to think strategically and spend your money on things that matter. You will want to pay for health insurance, car repair, and so on.
You get the point – once you die, you just die, and your savings will be of no use to me. So, don’t make the mistake of living a cheap and frugal lifestyle when you can do better.
Good vs. Bad Debt
Another important aspect to understand about money is that there is good debt, and then there is bad debt. Usually, many people get this area wrong by assuming that all debt is bad. Now this aspect might work for some people – especially if they have had loads of problems paying their bills and paying off their debt in the past.
Nonetheless, it is essential to understand that good debt exists that people can use or leverage to make money, such as real estate. However, research is essential if you don’t want things to go wrong. There is good debt worth taking – for instance, when you have college fees, debt gives you the knowledge you can use to improve your life later.
A student loan is essentially an investment that will help you improve your quality of life later. However, if you are using your credit card to buy the latest television, then this is certainly not considered a good investment.
But if you are taking an amount out of the bank to get your master’s degree, you are actually paving your way for a better future and more stable financial future too. This way, by taking out money now, you will make more money in the future, which could be seen as a fairly good debt.
Understand the Law of Capital
There are two types of capital – there is human capital, and then there is physical capital. You will want to be mindful of how you invest. Perhaps you could invest in real estate and have gold or cash in your hands, which would all fall into the category of physical capital.
Then we also have something known as human capital, which is something that everybody should be aware of. Human capital is basically all about investing in yourself. For instance, if you want to build your human capital, you could read books, get an education, learn new skills, listen to podcasts, or find ways to increase your knowledge.
It is hard to put a price on human capital – human capital is a wonderful investment from the greater perspective. So, while you are busy making more money, you will want to be gathering more skills and knowledge as physical capital might get taken away from you – but – human capital is something that no one can take away from you.
Have you ever wondered why loads of people who win a lottery go broke? The same could be said about sportsmen who have to file for bankruptcy – even though they make millions of dollars. This aspect is also known as lifestyle inflation.
Lifestyle inflation stems from the habit of spending more money than one makes. This aspect perfectly explains why loads of people think that money will fix their issues in life – if they are poor now and they have no money now.
They think that if they start to make more money – it will fix their problems. For many people, this is simply not true. Why – you might ask? The answer is that most people don’t have a basic understanding of finances and a solid financial groundwork to start saving money and building wealth.
Follow a 24-Hours Rule
Another important buying rule to know revolves around 24 hours. If you want to build a better and more stable financial future, you don’t want to make the mistake of being an impulsive buyer. This rule is vital for purchases that come with a hefty price tag.
Suppose you want to buy a new car, or you want to buy the latest version of an amazing tech gadget; you will want to sit on it for 24 hours and really think about it before making the ultimate purchase. Believe us when we tell you that by following the 24-hour rule, you will save loads of money.
If you still feel excited about buying the item after 24 hours – then go ahead and spend your money. But – most of the time, you won’t feel the same, and your impulsive desire to spend money will disappear after 24 hours.