X

How To Manage Your Money For Financial Freedom

12

how to manage your moneyManaging your money is probably the most important habit to master in order to become financially free.  It amazes me how much people are focused on making money, but yet don’t have a clue on how to actually manage the money that they’re making.  It’s not how much you make, it’s how much you get to keep.  It’s also learning how to effectively allocate your income and leveraging your money to make you even more money.  There’s one thing I’ve learned that all successful people have in common:  they are good money managers.  This video blog is on the topic of how to manage your money, the importance of it, and I also share a template that I use to manage my finances every week.

Watch the video below:

(Click here to watch on YouTube)

Click here to download the template.

The Habit Of Managing Your Money

Managing your money is a habit.  It’s something that requires your focus and attention on a weekly, if not monthly basis.  I prefer to manage my finances every week, as it helps me keep awareness of my spending habits and allows me to make adjustments.  It also helps to motivate me to make even more money, as well as make more intelligent decisions with the money I have.  Managing my finances every week has been a habit I’ve incorporated for over 4 years now and it’s changed my life.

I started my first business when I was 21 with 2 business partners.  We had no clue what we were doing.  We didn’t manage our income and expenses, and as a result we ended up in massive debt.  We rationalized our spending, telling ourselves that “we were making money”, when in reality, we weren’t.  We didn’t factor in the amount of money we would have to pay the government at the end of the year in taxes.  We didn’t factor in all of the small expenses that add up each month.  There were many things we overlooked that got us in trouble.  All of this could have been avoided by tracking our finances on a weekly basis.

I was in heavy credit card debt in my early 20’s, mostly the result of lack of money management.  I spent more than I earned, which is a destructive habit.  I’ve now learned that the secret to wealth is to spend LESS than you earn and invest the difference.  It took a lot of mistakes to realize that, but it’s now a principle that has changed my life.  The way that I got out of that debt was taking control of my finances.  I decided that I’d track everything in an Excel spreadsheet every week, both my income and expenses.  I also decided that I’d keep a budget and make sure that my spending didn’t get out of control – that I would be living within my means.  This allowed me to slowly pay off my credit cards, month by month, and eventually I was debt free.  I’ve never looked back.  Managing my finances every week is now something that I’ll do for the rest of my life.

I decided to create a template of the spreadsheet that I use to track my finances.  I don’t use anything fancy, or have an “elaborate” software.  I prefer to use Microsoft Excel, or a Google Spreadsheet.  I like to keep things simple.  I’m aware of options such as Mint.com and other websites similar, but I’ve never been able to stay consistent with those enough and my spreadsheet is something I’ve grown accustomed to.

Click here to download the template that I use to manage my money.

You’ll want to customize it to your liking, as mentioned in the video.  You want to make sure you get in the habit of updating it every week.  I personally use credit cards for all of my expenses now, as it’s much easier to track than cash.  Plus you can collect points and air miles.  I simply spend 15 minutes every week going through all of my income and expenses, and then updating that document. 

manage your finances

How To Allocate Your Money

I’ve read dozens of books on finances and attended many seminars on the topic.  They all mention one principle that will change your life:  pay yourself first.  The Richest Man In Babylon, Secrets of the Millionaire Mind, The Wealthy Barber, and many other famous books on finance all say that you need to be paying yourself 10% of your income and re-investing it.  Yet, I’ve noticed that VERY FEW people actually do this.  It amazes me.  I’ve been doing this since I was 18 years old and I’ve never lived any other way.  The truth is, if you’re not saving or re-investing your money, then you aren’t getting ahead.  You can’t be living pay check to pay check and expect any progress financially.  The goal of the game is to accumulate assets and to build your net worth.  If you can accumulate assets that pay you a dividend, cash flow or passive income, even better.  To achieve this, you need to be managing your money!

There’s been many “formulas” thrown out there on how to effectively allocate your income.  I’ve personally used the model taught by T. Harv Eker in his book Secrets of the Millionaire Mind and at his Millionaire Mind Intensive seminar.  It goes like this:

55% of your income goes towards necessities (rent, food, cell phone, etc…).

10% of your income goes towards long-term savings (for security, not for risky investments).

10% of your income goes towards financial freedom (real estate, stocks, mutual funds, businesses, etc…).

10% of your income goes towards having education (books, seminars, courses, trainings, coaches, etc…).

10% of your income goes towards fun (enjoying life and giving yourself pleasure).

5% of your income goes towards giving (charities, foundations, making a difference, etc…).

The reality is, most people have 80-100% of their income going towards necessities, which is scary.  Again, most people are living way beyond their means.  You may have to simplify your lifestyle and cut back on things, so that you can take some of your money and invest it effectively, or even invest it in yourself.  If you want to learn more about this, I’d recommend either the book The Richest Man In Babylon or Secrets of the Millionaire Mind.  If you get a chance to attend the Millionaire Mind Intensive, do it – it’s one of my favourite seminars ever!

The key is to develop the HABIT of managing your money.  It doesn’t matter how much money you make.  In fact, you can often get ahead of others that make more money than you, simply by managing your money more effectively.  If you don’t master these skills, you’re going to get in trouble financially.  You often hear these crazy stories about people winning the lottery and losing it all within a few years.  How is this possible?  It’s because they haven’t developed the HABITS to be able to effectively manage that amount of money.  They don’t have the discipline and mentality for it.

It’s not until you’ve proven that you can manage the money what you currently have, that you will start to earn more.  Build the foundation for yourself now, make wise financial decisions, allocate your money effectively, and you’ll be able to be financially free.  I’ve done this for over 10 years now and I am in a better financial situation than all of my friends who are many years old than I am.  It’s not too late to start, do this stuff now!

 

How To Manage Your Money For Financial Freedom
4.29 (85.71%) 7 votes
  • Sean PI Stewart

    “It’s not until you’ve proven that you can manage the money what you currently have, that you will start to earn more. ” love this very true

    • Sean – I heard a good story that goes like this:

      A kid wants a double scoop ice cream, which he asks for you. You, being the nicer person you are, decide to buy it for them. The kid is happy and is enjoying it – until something happens and the kid drops the cone! He starts crying and is upset, so you offer to buy him another one. This time the kid sees the TRIPLE scoop and starts begging you for that. Do you buy him the triple scoop? NO, because the kid hasn’t proven that he can handle the double scoop first. It’s the same way the universe works. The universe won’t give you more money, until you can first PROVE that you can handle what you already have. Once you’ve proven that you can, then the universe will give you more. I really liked this story… I’m paraphrasing from how I remember it, but it really made sense to me.

  • Agustín Pérez

    Thank you for all the coaching, Stefan. Greetings from Central America!!

  • Ginel McLarty

    Very great video and blog post. It is simple, but very valuable and understandable information that can be put to use immediately. Thank you for the information and love your videos as well as writing.

  • Mohammad

    Hi Stefan!
    Thank you for the useful tips.
    I’ve got a question – the money I need for my own online businesses e.g. kindle business, paying for hosting, domain names, outsourced work etc., would that come from the financial freedom or necessities portion of my income?
    Thanks and thanks again for the amazing blog!

    • You could take it from Financial Freedom, since you’re using that money to invest in your business, which will help your financial freedom.

  • Sweet man! Can’t believe I missed this post Stefan.
    I just finished rich dad poor dad and was looking for a way to manage my money.
    I’m definitely going to tweek it a bit, but it’s a great foundation to start from!

    Btw, I don’t really have many necessary expenses yet. What should be the main focus of my money then?

  • Leslie

    Hey Stefan. Great video. I downloaded your template, but not sure if I am missing some of it. You said you manage your finances weekly, but the template is monthly. Do you have another template for weekly management. I can’t figure out how to work it weekly. Also, do you count your investment money as another expense on the template? Don’t know where to put that. I’m working on budgeting my money better and I know this will help tons as soon as I figure out how to use it. Thanks so much for your videos! Love them!

    • Trevor M

      I have that same question. I suppose you would just add in the expenses from Wednesday-Tuesday weekly four times to equal the months total

  • Itamar Blumenfeld

    This is one of the best posts I’ve ever read about managing your money. Thanks a lot for your wisdom and sharing it with the world.

  • Susan Hámori

    Wow, thank you! This was really helpful!!! -Also thanks for the spreadsheet! 😀

  • Caleb Ormsby

    Amazing video and talk!!! Thank you for the spreadsheet. You have inspired me to take control over my finances more efficiently now 🙂