Monday, August 15, 2011

Part 3.1: The basic concepts of money management - cash, assets and liabilities

To begin understanding how money works and how it increases or decreases in value, we first need to understand the basic concepts, the things that decrease or increase in value.

We can classify all of our properties into three things:

1. First there is cash. Cash is what almost everyone wants. Cash is money, the bills and coins that we use to buy food at the grocery, to pay for our gas or fare. Centuries ago, people traded objects with objects. If a fisherman wanted to buy salt, he will exchange part of his catch to pay for the salt. Now, we use cash, the standard, universal object with value (as printed on the bill like $10, 20, etc.) to pay for the things we need.

People want more cash because lots of cash makes one rich. Or so we think. Hold that question, let me explain this later.

2. There are also assets. Simply put, assets are properties that earn money for you. There are different types of assets; there are tangible assets such as a house,a  building and businesses, then there are intangible assets (or paper assets) such as stocks, treasury bills and mutual funds. As the word suggests, we would like to have assets because these add value to our wealth. I'll expound on this on my next post.

3. Then there are liabilities. Liabilities are exactly what the name implies, they are a burden because simply put, liabilities are expenses. They make us lose our money or current value of our money. For instance, if you spend $30,000 or Php1,200,000 peso for a brand new car, in a three years, your money will decrease its value to P400,000 because that will be your car's worth after three years. So your money decreased. Liabilities work this work way, that is why we would like to get rid of liabilities in order to become truly wealthy.

Now, let's delve in deeper in the discussion:  How do these differ in value? Which of the three would I want to become rich? I'll tell you more in my next post so stay tuned.

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Sunday, August 7, 2011

Part 2: Why do we need to manage money?

Why is money important?

Apart from time, money is an essential resource that we will need for as long as we live. With money, we can buy the essentials and luxuries in life. We need money to pay for food, clothing, shelter and service. And without it, we couldn't get food.

Money is not everything

Some say that money isn't everything, and I agree. Money indeed isn't everything. There's more to life than just having money, but we must have money too to have options in life. For example, wouldn't you prefer to live in a comfortable home with its own garage, garden, toilet and bathroom, rather than live in a small space with shared toilet and bathroom? I would! If given a choice, wouldn't you want to send your children to the best school? Of course, you would! If unfortunately they became sick, wouldn't you want to send them to a private hospital with the best medical equipment and doctors, where they could get the best possible care? I'm sure you would too!

Money is not equivalent to happiness

Money too can't buy happiness -- I've met people who have millions in their bank account but every day they feel miserable because after working so hard for years to get that money, at the end of the day they do not have a family or someone special with whom they could share their achievement.

... Yet money is important

Like I said, money isn't everything but we need money to live comfortably and to have choices in life. The amount of money in our bank account will dictate our quality of life, and all of us always want the best out of life. It's only natural, because as we grow, we constantly want for better things. This is rooted to natural impulse of living. Like a seed growing to a plant, every day we must grow more and become more. Because, as the old adage goes, any person who stops growing is dead.

Having money helps us to grow and become And for us to grow, we require things to use. Do you want to become a
better piano player? Then read books or enroll in a piano lesson. Do you want to write better? Then rent or buy books so you can read more and improve your language skills. Do you want your kids to reach their maximum potential? Then let them try a lot of things so you would know where they are best at, may it be sports, music, art or anything! For all these things, we need money so that we can avail of the things that we need to improve.

Money is not evil

With these said, I hope you grasp the importance of money. Religion may teach you otherwise, but if you believe in a god, believe that the god wants what is best for you. And to attain your highest level of growth, god wants you to have a comfortable life. I don't believe that the god would like you to suffer. No one in their reasonable mind would wish this for you, because wishing such for you is tantamount to hoping that you would never grow, that you will retain whatever you have while the rest of the world goes on to become more and achieve more.

If it were true that god doesn't want you to have money for your sustenance and growth, it is directly opposite to what God has said through the parable of talents. You were given a life and talents, and if you choose not to harness them, they will be taken away from you. Money then, is important for us to have to help us in our path for growth. That is unquestionable.

If you have friends whom will find this info useful, help them by sharing this article with them today.

Next: Read about Part 3.1: The basic concepts of money management - cash assets liabilities.

Watch out for it!

Friday, August 5, 2011

How good are you at managing your own money?

While many of us are are dying to have lots of cash at hand, have you asked yourself what would you do once that time comes?

I ask this because financial experts found out that the problem with money starts and ends with -- no, not how much you earn -- but how you manage your money.

Manage money? Is that even necessary?

Yes, it is. Like everything else in life, money needs to be managed well. Are you handling your finances well? Below I wrote several questions for an initial checklist so that you know if you manage your money well or not, or if you are somewhere in between.

  1. You have been working for years and you have had salary increase in the past. You were also promoted in your job before. But no matter how much you earn, you are almost always out of money before the next pay day comes. Yes or no?
  2. You earn enough. But whenever you get extra money like a salary bonus, something always comes up like your partner's debt, or a school requirement of a family or a friend. To make a long story short, you end up spending your bonus income. Period. Yes or no?
  3. I have a stable job but I have a small savings.Yes or no?
  4. I have a stable job but I have no savings at all. Yes or no?
  5. I earn enough but I feel I should earn more because the money is never enough. Yes or no?
  6. I get an allowance bigger than most of my friends' but it's still not enough. Yes or no?
  7. I'm not employed but I get paid for projects here and there. The pay is more than what most people earn in a month but I often find myself short on funds. Yes or no?
  8. We had an emergency recently or in the past and I didn't have money to cover the expenses. Yes or no?
If you answered mostly yes to the questions below, then my friend, I am sad to say we need to work on your financial literacy, or your knowledge about money. It's true that money can work for you, and we will find out how you can stop running after money every month, and instead make money truly work for you. This is the key to become wealthy.

I will teach you lessons that I had to learn the hard way (by being employed and starting my own business). I will share with you valuable lessons about money in a simplified, step-by-step guide to mastering money management.

So stay tuned, friends, and more info are coming your way here!