Welcome To The Course, Mastering Money The S.M.A.R.T Way Without Working Any Harder! Lesson #3

MANAGE AND RESPECT YOUR MONEY

By the end of this module, you will learn how to manage and respect your money and make informed investment decisions to become a SMART MONEY MANAGER.

You can’t manage your finances without the right financial information.

Managing money, like managing your household, must be worked on throughout your life like exercise or washing. You cannot expect to stay in shape if you only exercise once a year!

What does managing your money mean?

Managing could be defined as control, influence or taking charge. An example of managing finances well is having enough put aside to be able to pay your bills despite a job loss.

Question

If you lost your job, for how long could you manage and pay your bills?

During a financial crisis or recession, millions of people lose their homes within months of being made redundant.

They have no savings. Instead, they have rent or mortgage payments, credit cards, car lease payments and loans. In short, most people live on a knife edge and are no more than three salary payments from bankruptcy.

Rainy-day money

You must have an emergency contingency fund so that you are not dependant on credit cards or instant payday loans when the car or washing machine breaks down.

Some well-known payday lenders charge as much as 91% APR (annualised percentage rate) for small unsecured loans, according to Payday UK’s website.

Borrowers do not realise they are paying an annualised 91% because they are paying off the loan in less than a year.

Payday UK quotes the following example:

“Representative Example: Borrow £500 for 6 months. Interest: £160.27 - Interest rate: 65% per annum (fixed). Representative APR: 91% - Total amount payable: £660.27. Rates between 9.3% APR and 1294% APR”.

Even high street banks are charging as much as 40% for a temporary overdraught – 400 times the base rate!

UK base interest rates are 0.1%, the lowest it has ever been in history.

If a lender is charging you 3% on your mortgage, that is 40 x the 0.1% the base lending rate on which they can borrow money from the markets and us depositors. I have never seen such a high margin.

Mortgages used to cost around 2% over base lending rates, so when the base rate was say 8%, you would typically pay 10% on a mortgage – or a margin of 1.25 over base lending rates.

Solution.

Make sure you have a contingency fund for emergencies, so you don’t have to rely on loan sharks.

If you do need credit, search for cheaper alternatives online or try credit unions.

You should have reserves equivalent to 6 to 12 months’ salary in the bank in case you lose your job or source of income. Large companies, government and local authorities hold millions of reserves. They also have a ‘disaster recovery’ plan in place.

You cannot possibly manage or control your finances without data, which means knowing exactly how much money is coming in and going out.

Managers cannot manage a company without accurate management information and your household is no different.

Think of yourself as a business or corporation even if you work for somebody.

You are the CEO of your own business.

Hold monthly, quarterly and annual board meetings with your family, even you’re the only director!

Set up a system to keep a track of your revenue and costs.

What does “respecting” money mean?

Respect money and it will respect you. The author and speaker Joe Vitale, who was featured in the movie The Secret, advises that “money has its own psychology” and “energy”, which you can either attract or block depending on your mindset.

Energy does not die; it moves around and changes form. Similarly, money circulates and helps multiple people and causes.

Think about it. Let's say you give $10 to a friend to pay his cleaner. His cleaner then uses the same $10 to pay for shoe repairs, the repair guy takes the same $10 to buy lunch and coffee at Starbucks. Starbucks bank the cash. Your friend goes into the bank to draw cash out to repay you and gets the same $10 note and gives it back to you. How many things has that same $10 bought?

Right now there are trillions of dollars in circulation.

Author Brian Tracy gave me a simple idea at one of his seminars in America. The great speaker said: “You should respect money and even look after the cash in your wallet or purse by placing each dollar bill neatly and in order of value, with the President’s head facing the right way”. This might sound silly, but Brian went on to say that whenever he met someone who had money issues, their money would be stuffed into their pocket or purse like crumpled pieces of worthless paper. It was a metaphor for the way they treated money, and ultimately the way money treated them.

Respecting money is like respecting others, treating it well, nurturing it, looking after it and always taking care of it.

I had a school friend, Malcolm, from a well-off family who would casually throw away penny coins from his pocket saying they were “dirty” and “worthless”.

His lack of respect for money led to Malcolm being broke and living week-to-week for the rest of his life - even when he was earning well.

I had a habit of picking up “dirty” coins, which I retain to this day. The late Wayne Dyer also picked up coins and gave thanks for the blessing of money before putting them in a big jar.

Look after your money and it will look after you.

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Education is key.

Lack of financial education can be extremely costly of your lifetime.

For instance, not understanding how high management charges on mutual funds or pension schemes can affect the value of your portfolio – which could cost you hundreds of thousands.

Buying a house is probably the biggest financial transaction most people make in their lives, yet few people understand mortgages. They borrow hundreds of thousands and sign on the dotted line without reading the terms and conditions.

I have met extremely intelligent academics, scientists and directors running huge companies who did not know how to manage their personal finances and in some case made costly financial errors or retired broke.

Finance is not taught in schools, which is why we graduate from formal education financially ignorant. We rely on financial advisers to tell us what to do, but where do the advisers get their financial education? The answer is, from financial industry led courses. Anybody can take these financial adviser courses!

Take a financial adviser course.

You can take a basic financial adviser course without becoming an adviser. The knowledge I gained from the courses to become a regulated adviser have been invaluable to me throughout my life.

The courses taught me about saving and investing, but more importantly, borrowing money and using the infinite benefits of leveraging 'other people's money'.

This knowledge has literally been worth millions to me over the years.

A short home-study financial course could be worth more in money terms than a university degree.

Never stop learning.

The world of finance is constantly changing and evolving. Keep yourself up-to-date by reading the financial pages of quality newspapers and magazines online or use your local library. It only takes a few minutes each day to scan the financial news, or an hour at the weekend to read the money pages, but this small investment will pay exponential dividends and perpetual returns for the rest of your life.

Summary Day 3

Managing and respecting money, and learning about the world of finance, is a lifelong process like looking after your health.

Action Steps

• Think about how you manage your money.
• Start recording your monthly income and expenditure.
• Calculate how long you can survive if your income dried up.
• Start saving for emergencies and have a disaster recovery plan.
• Start building up a fund to cover 6–12 months of essential expenditure.
• Organise and respect your money.
• Educate yourself in all aspects of personal finance.
• Take a course or read books.
• Read the financial news.
• Never stop learning and updating your knowledge.

Thank you for listening and congratulations on completing this module. In the next module, we will be looking at how to accumulate money over time.

If you would like to learn how to invest and manage your money, become a professional property investor, and be financially free without working any harder and spending your life exchanging your time for money watch this free on demand training now to learn how to become financially free without working any harder.

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