There are certain things about money that most people simply don’t understand such as the fact that money won’t turn you into a person without flaws or make you significantly happier than you presently are. In fact, these examples just scratch the surface and what I want to share with you now are 7 money lessons that truly changed my financial life forever so I hope you enjoy!
Lesson #1: The 80/20 Rule of earning income
One of the important lessons that you have to learn right now is the 80/20 rule. Another name for this rule is the Pareto principle and it applies to many things including your ability to earn income. Vilfredo Pareto was an Italian economist and he made this rule popular after he published his finding on the wealth distribution of Italy’s citizens in the 19th century. He noticed that 20% of the citizens owned 80% of the wealth and since then, this rule has been applicable in so many ways. This rule states that 80% of results come from 20% of the efforts made.
The application of this rule in the context of your income is to help you identify your high-income activities allowing you to focus on them. This rule will help you identify the best place to spend your time, money, energy, and resources. It is possible to be busy all day, feeling like you’re working hard while you’re not getting the maximum results you could be given the type of activities that you’re engaging in. For example, in business, 20% of your customers will bring 80% of your income. You have to focus on this 20% if you want to maximize profit. Your promotions should be targeted more at the people who spend the most amount of money on your business.
Another practical example of where this rule is applicable is with your workers. 20% of your workers will produce 80% of the result obtained. Also, 20% of your product will bring about 80% of the total sales. Spending the same time on a low-selling product is a waste of time. Therefore, the 80/20 rule will help you to focus on the high-selling products so that you can make more profit.
You can find out how the 80/20 rule applies to you by taking out time to list out all the activities that you do in a day. Ask yourself, how much does each activity contribute to my success? You will find out that only a few activities bring the greatest result. Focus on those few activities and, if possible, delegate the remaining activities or do them only after you are through with the most important activities.
Lesson #2: Leveraging short, medium, and long-term goals
Another important lesson you must learn to take your finances to the next level is how to take advantage of short, medium, and long-term goals. The quality of a good goal can be described with the acronym SMART. That is, a goal must be “Specific”, “Measurable”, “Attainable”, “Relevant”, and “Timely”.
No matter how important a goal is, without a deadline, it is more difficult to achieve. That’s why goals are divided into short, medium, and long term goals. You must learn to take advantage of these time frames to make it easy for you to track your goals to know if you are making progress or not.
For a goal to be successful, it requires careful planning. The first step in planning your goal is by writing it down and deciding how long it will take to achieve it. Don’t forget that a good goal must be measurable and have a time attached to it. This will help you manage your wealth and even make more money when you become rich.
Short-term goals are things that you want to achieve very soon and it may be within a few days or weeks and in some cases a few months. Medium-term goals take from a few months to about 5 years while long-term goals usually involve several years. Long-term goals are achieved by combining both short and medium-term goals.
Lesson #3: Self-investment is the foundation for all other investing
The best investment you can make is in yourself. You can lose money but you can’t lose the experience and the knowledge that you have acquired through investing in yourself. Self-investment has the best return on investment and no matter how much you invest in becoming better, it will always be worth it. The skills and knowledge that brought you to where you are right now are not the same skills and knowledge that will take you to the next level so you have to constantly develop yourself.
Self-investment increases your value and your confidence. You can invest your money, time, and resources to become better by learning new skills and building a network. You have to determine what skills or knowledge you lack to know what to improve on. Set goals to become better and leverage on short, medium, and long-term goals as I just talked about in the previous secret.
You must learn to invest in books to learn from people who are better than you are in your field of interest. You can have a goal to read a certain number of books every month or a particular number of pages every day. One of the common qualities of most rich people is that they have the habit of reading a book daily. You must learn to cultivate the habit of reading so that you can maintain such when you become rich. You can learn relevant skills and build your network by attending seminars and workshops.
Another great way to invest in yourself is by doing things that will keep you healthy. Remember that health is wealth. Eating good food and exercising regularly can have a great impact on your life. You must not fall into habits that encourage an unhealthy lifestyle. Learning how to live healthy now makes it easy for you when you become rich and have a busy lifestyle.
Lesson #4: Buying need items will eventually allow you to buy want items
Another important I have come to learn is how to differentiate between your needs and wants. Most of the time, we spend so much money buying things that we do not need because we do not know the difference between our needs and wants. Your needs are the essential things that you cannot do without while wants are the things that you desire to have but you can do without them.
However, you don’t have to always deny yourself the things that you want just because you can do without them. Although you can do without a pair of designer shoes or an extra bag that does not mean that you should not buy them. There are exceptions and times when you have to buy the things that you want. You can buy what you want without sacrificing your needs, you only need to learn that buying need items will eventually allow you to buy want items.
When you buy what you want before buying what you need, you will eventually put your needs aside and buy things that have no value. You have to differentiate your needs from your wants and make your needs your priority. You are going to save more money when you buy need items before want items. For example, spending $4 on snacks and coffee every weekday is about $20 weekly and about $1,000 in a year. You can save $1,000 every year by avoiding coffee and snacks every day. You can then use this money to buy the things that you want.
Lesson #5: Time is either your biggest ally or enemy
Time can be your biggest friend or enemy but you get to decide which one it’s going to be. This is another important lesson that you have to learn before you become rich. Time is limited and one of the most important resources on earth. You can’t have more time or save it, you can only spend it. How you spend your time is what determines whether time is your friend or enemy.
There are a few ways to know if time is your enemy. Time is your enemy if you struggle to get things done every day because you think that you do not have enough time. Time is your enemy if you wake up early in the morning and sleep late in the night without achieving any important thing that day. Time is your enemy if you barely have time for your family because you are always busy at work and you lack sleep.
You have to learn how to make time your friend instead of your enemy. You have to learn how to spend time on the things that you love and not only on work. You won’t get more than 24 hours in a day so quit wishing you had more time and learn to use your time more effectively. You need to learn how to constantly take a break, rest, and do the things that are important to you. Time for resting should also be included in your schedule. However, you should try and avoid taking too much rest time if you still have work to do.
Learn to find a balance and create a schedule that works for you to be more efficient. You don’t have to put yourself in situations where you are always trying to meet deadlines and working late at night. Maximize your most productive time and do the most important things during that period. Don’t forget the 80/20 rule that I talked about in lesson #1. Also, learn to use other people’s time by delegating works to them and increasing your output.
Lesson #6: Save as a percentage of income and not a dollar figure
It is not how much you make but how much you keep that makes you wealthy. One of the questions that people ask is how much of their income they should save. There are different answers to this. Some suggest you save 10% — 30% of your monthly income while others suggest that you should save some certain amount every month.
Saving a percentage of your income makes it is easier to save more money when you are scaling up your income. I will explain this with an example for better understanding. Let us assume that you decide to save 20% of your income every month and you make $1,000 monthly. This means that every month, you will save $200 from your income. If your income increases to $1,500, then 20% of that amount will be equal to $300. As you can see, the more money you make, the more money you save.
Let us assume that you decide to save a fixed amount of $200 every month and your income is $1,000. This is equivalent to 20% of your income. If your income increases to $1,500 the following month, you will still save $200 and that is just about 13% of your income.
Lesson #7: Money doesn’t buy happiness, but it can offer you freedom
Indeed, money doesn’t buy happiness but it can offer you freedom. I have never seen a poor man who is happy because he doesn’t have money. Money is important and you have to know that. Money doesn’t make you happy but you can afford things that will make you happy with more money.
Money gives you the freedom to do the things that you want to do. If most people don’t have to worry about money, they will be doing what they love today instead of a job that makes them sad. Your happiness is not related to the amount of money that you have but with more money, it becomes easier to pursue the things that make you happy!