Tuesday, September 6, 2011

Part 3.2: The basic concepts of money management - the secret principle to becoming wealthy

Now that you know what cash, assets and liabilities are, allow me to differentiate the roles of these in terms of building wealth.

Notice that I used here the phrase "building wealth" and not "becoming rich". You might be asking, isn't being rich simply having more than enough money? Is there are difference between the two? You bet there is!

Becoming rich, for me, is simply the state of having a lot of money. You feel rich because you have in your possession loads of moolah but only today. What happens tomorrow or next year then, when prices of commodities begin to rise? The value of the money you have today will be worth less in the future, so you won't be rich or as rich as you are now.

Also, I know a lot of people who are rich. They earn Php100,000 or more every month but they also spend P100,000 or more every month! So before the next payday, they are left with nothing. Worse even are people I know who spend more than what they earn; they spend their cash and use their credit cards to buy things that they don't need and already own such as phones, laptops and other gadgets. This leaves them with an empty wallet and a mounting credit card bill that slashes their money's worth. It's sad but true. I am certain you know people like this.

So now, do you think being rich is simply having a lot of money? I hope you see my point that it isn't. Our goal here is not to become rich, but to become wealthy and live an abundant life.

Going back to the previous post, the basic concepts of money management - cash, assets and liabilities, among the three, what do you think you think in order to build wealth?

But before that, let's clarify this -- what does it mean to build one's wealth? Building wealth simply means having enough money or resources that works for you. This is the secret that your boss or your client refuses to tell you. because if you know and understand this secret principle well like they do, then you won't have to work for them again! You will be like the millions of Filipinos trying to eek out an honest living, working hard for a salary.

If you are like most Filipinos and citizens of the world who start as employees, then you have experienced working hard to get the money. You spend days at the office doing something you do not like just to bring home a pay which may not be even enough to cover your monthly expenses and occasional luxuries. Never mind the pay is low, because you keep reporting to work anyway, because you are thinking, too little money is better than nothing.

But did you know that instead of slaving hours away to earn money, your money can actually work for you? Your money, if used properly, can compound. This is great news, don't you think? And this is the truth! You don't need to trade your precious time for money. If you understand this concept well, you will never be someone else's underpaid and under-appreciated (ouch!) work slave. I know this well, because I've been there too.

How can you make your money work for you? This relies on your intimate understanding of the three concepts discussed in the previous post, the basic concepts of money management - cash, assets and liabilities. Among the three, what do you think you need in order to build wealth? You need two, cash and assets, to build your wealth. You just have to DO IT PROPERLY.

How do I do this then, you ask. Let me discuss this further in my next post. I am excited to share how you can do this! :)

Money Management Lessons by baneneng@gmail.com

NOTE: THIS WORK IS COPYRIGHTED! This is an original work by Baneneng, 2011. All works of intellectual creation are protected by international copyright law, based simply upon their creation, without any formal requirements. Please give due credit when using this text for your research, paper or article. You are NOT to copy, reproduce or republish this without prior and explicit consent from me. Go here to understand what Intellectual Property Rights are.

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