Manage Your Money Like A F#cking Grown-up | Sam Beckbessinger

 Manage Your Money Like A F#cking Grown-up

Financial literacy starts with understanding how money works

Everybody wants to sell you something. Businesses go out of their way to make their products appeal to your emotions and convince you to buy what you have no use for. Ads pop up everywhere to tell you how much your life will change if you get a product or subscribe to a service.

Marketers even influence our culture and taste strategically and make us accept certain standards that are unreasonable when observed logically. This is why almost everybody has come to believe that expensive cars, clothes, and gadgets are the true measure of success. If you are indeed self-sufficient, they say you must drive a nice car and spend lavishly. And in trying to meet all these unrealistic expectations that have become a standard in our society, many people have gotten themselves in debt up to their eyeballs.

If you want to become financially independent, you have to stop thinking like everyone else and start becoming more deliberate about your choices. The simple truth is, if you keep buying things you don't need because you feel they are in vogue, you will find it hard to build wealth.

Don't let devious marketers and advertisers turn you into a consumer. Stop thinking like a consumer and start thinking like a unique human with dreams and values that matter.

You will only gain control of your money when you learn to spend it solely on things that matter to you.

Being a grownup about your money starts with figuring out what matters to you and spending your money in line with it. People who don't spend in line with their values wind up striving to live up to unrealistic standards and never do what they need to do to attain financial freedom. This summary will help you discover the secret of money and how you can start paving your way to financial independence starting from today.

Building wealth will require you to spend your money more smartly

The basic thing you need to understand if you want to become financially independent is how money works.

And according to Sam Beckbessinger, there are three simple things the wealthy teach their children about money, and those are the things you need to know. Here they are:

• How you save money (assets)

• How you grow money (compound interest)How to protect your investments (diversification)

Now let's take a closer look at each of these keys to financial freedom.

The amount you save is the single most important part of being a fucking grownup with your money.

The first thing you need to internalize about wealth is that no one can earn their way to financial freedom. Unless you land in a financial windfall or have a genie at your command, if you want to be wealthy, you have to save.

You could earn all the money in the world, but if you don't save a percentage of that money, you'll never be able to build wealth. Conversely, even if you're not making much, you can earn your freedom by having the discipline to save more of your salary.

Now it's time to get familiar with your cash flow.

Your cash flow is made of two things:

• Income (money in)Expense ( money out)

People whose expenses are greater than or equal to their income are, as Sam Becbessinger puts it, “wage slaves.” Even if a wage slave earns a million dollars monthly, they are always a paycheck away from going flat broke. They live from paycheck to paycheck. Once wage slaves run into a problem with their paychecks, they resort to borrowing money, which leads to debt and takes them even further away from financial freedom.

Another thing you have to be familiar with is your balance sheet, which also comprises of two elements:

• Your properties (assets)Your debts (liabilities)

To classify something as an asset or a liability, ask yourself, “Will this put money into my pocket (an asset), or take money out of my pocket (a liability)?”

Your net worth is the difference between your assets and your liabilities.

To build wealth and carve your path to financial freedom, you have to spend less than you earn and save the difference by moving it over to your balance sheet — that is, by using it to reduce a debt or buy an asset.

In a nutshell, it doesn’t matter how much you make unless you’re keeping a lot of it and building up a healthy asset base. That’s how you get ahead.

Grow your money by making it work for you to make more money

American investor and business tycoon Warren Buffett famously said that people who don’t learn to make their money work for them will work till they die.

The truth is, most of us are only taught how to make money and spend it almost immediately. We are ignorant of the fact that our money is a tool to make more money. This is why most people often spend their whole life toiling without attaining financial independence.

If you want to build wealth, you have to take a page from Warren Buffett’s book. That is, you have to get to the point where you are earning money while sipping a cold pina colada on a sunny beach or while having tea with your mom.

So how do you get to that point? How do you get your money to start working for you and making more money? Welcome to the world of investing, which brings us to the second secret to wealth creation: grow your money.

When it comes to money, the most powerful force is compound interest.

Here’s a question for you. Would you prefer to be given a million dollars in cash today or be given a penny that doubles every day for 30 days? It sounds like a million dollars would be the better way, right? Well, it’s not. If you took one penny and doubled it every day for a month, by the end of day 30, you’d have over 5.3 million dollars — from one tiny little penny. That’s the power of compounding.

So, compound interest is all about your capital (the amount of money you put in), the term (how long you can let the money grow without touching it), the rate (how fast it grows), and the compounding period (how often the growth occurs).

Every year you wait to start saving, it costs you much more than you think it does.

It is worth noting that “saving” in this case isn’t about putting your money in a bank account. Letting your money sit in a bank account is like lending it out without getting any interest in return. The bank will invest your money and give you a tiny fraction of the return as annual interests.

The best way to put your money to work is to invest in equities (stocks), bonds, and financial endowments. You can also invest in property or gold.

Keep your money safe by diversifying your investments

Once you’ve learned to save and grow your money, the next step is to learn to keep it safe. As soon as you dip your foot in the world of investing, you’ll hear people talking about “risk” a lot. You’ll most likely tell yourself, “Hell no, I’ll never put my hard-earned cash into something risky.” You’ll think about how much you’ll be at peace if that money is stored somewhere safe, like in the bank or under a mattress.

Unfortunately, while it seems like putting your money under your mattress is a great idea, it is probably the most dangerous thing you could do with it, not because it can get stolen or get shredded into pieces by rodents, but because of a little thing called inflation.

Inflation is a decrease in the purchasing power of a currency, shown in a general rise in the prices of goods and services in an economy over a period of time.

The thing is, you can’t see into the future. Neither can the fancy finance guys on Bloomberg or CNBC. So, one of the smartest things you can do with your money is to diversify your investment portfolio. What this means is that you take lots of small bets instead of gambling all of your money into a single thing.

It’s less risky to own a portion of 100 businesses through stocks than to own the whole of one business. Not a lot has to go wrong for one company to fail, but it’s highly unlikely that 100 companies would fail all at the same time.

The more you can diversify your investment portfolio while still keeping your costs low, the better.

In essence, you don’t keep your money safe by avoiding risks. You keep money safe by diversifying. You can diversify across industries, countries, and asset classes.

Did you know? There is a very high chance that inflation will only increase over your lifetime. So if you don’t put your money to work through investments, its value will simply decrease every day.

If you’re in any form of debt, make it a priority to settle it as quickly as you can

The reason it often seems pretty difficult to manage money is that there are tons of competing priorities. Having just one focus helps.

Sam Beckbessinger says if you currently have any debt, the best thing to do is get rid of it first, no matter what your other priorities are.

Debt can be a really crappy thing because all your spare money will go towards paying for things you’ve already bought in the past, not things that are going to make your future better. It traps you and snowballs at such a rate that it reduces your options to the barest minimum.

According to the law of compounding, here is an illustration of how your debt could be growing out of proportion:

• Credit card: 22%

• Store loan (e.g. Target cards): 22%

• Overdraft: 23%Microloan: 89%

Now compare the above data to how much interest savings and good investments can bring in for you:

• Savings: 6%Lucrative share portfolio: 14%

So make it a priority to kill off your debt. But don’t feel bad about the debt. Almost everyone in the world has been in this situation at some point in life. The whole financial services and advertising industries are set up to trap people in debt forever. Just do the best you can to get out of it so you can start living your life on your own terms.

The way to get out of debt is to cut down your expenses to the minimum and pay off the debt as quickly as you can.

If you have more than one debt, Sam Beckbessinger recommends using a strategy she calls the avalanche method. Here is how to go about it:

• Make a list of your debts from the highest interest rate to the lowest.

• First, pay off the debt with the highest interest.Once the most expensive debt is off the list, take the full amount you were paying on it and put it all into paying off the next biggest one.

If you recall the principles of compound interest, you’ll know that this is the most rational way to pay off debt, as it can help you save a lot of money.

Your risk tolerance in terms of investments should be determined by your age

As you are well aware now, diversification is essential if you want to grow your money and keep it safe through tactful investments. The good news is, you don’t need to worry about building a complex portfolio that comprises over 400 shares and some gold bars hidden in your closet.

There are simple investing funds that are already diversified for you. We’ll take a closer look at one of those in the coming chapter, as there is something you need to know about risk first.

If you are under 50, you can have a considerable amount of risky investments in your portfolio.

According to Sam Beckbessinger, most of your assets should be held in equities if you are younger than 35. Generally, stocks are high-risk, high-reward assets. Therefore, the more time you have to invest, the higher risk you should be taking. You are young, so you’ve got the time factor as an edge. In the long term, equities are the best performing asset, so this is the smartest way to grow your money.

Of course, the risk we’re referring to here doesn’t mean risk in the technical sense, like pumping your money into shady investments.

As you grow older, you’ll want to start phasing lower-risk investments like bonds into your portfolio as well. One of the rules of thumb investors use for this is called the 120 rule:

Subtract your current age from 120. That’s the percentage of your portfolio that should be in stocks and equities. So, if you’re 30 years old, for instance, 90% of your assets should be in stocks. If you are 50, that would be 70% of your portfolio in stocks.

Another wise decision you can make in terms of investment is to set up an automatic debit order that goes into your investing account each month on the day you get paid. Don’t burn yourself out by making everything a conscious choice about the amount to spend and the amount to save. You’d do yourself a lot of good by setting up an automatic payment to make sure you save as soon as you get paid.

Also, make sure you stick to a simple, low-cost investing strategy. Make sure you understand what you’re investing in. Find a single fund that is already as diversified as possible, with the right level of risk for your age. Don’t try to beat the markets; focus on reducing your cost.

Investing in low-fee ETFs helps you leverage the full power of diversification

So you’re just starting out as an investor, and you need a single fund that is already as diversified as possible, with minimal risk. Meet the “low-fee global index ETF.”

The ETF — exchange-traded fund — works like any other company listed on the stock market. Just as you would buy and sell shares in a regular company’s stocks, you can do the same for an index ETF. But one cool thing about this asset class is that it’s like you’re essentially buying the entire market.

The fund tracks the index, which is like the overall performance of all the companies in the market. That is, if the whole stock market goes up by 5%, then the fund goes up by about 2%. It’s just like you bought shares in all the companies listed on the market, except you don’t have to keep hundreds of stocks in your portfolio and monitor them separately. All you do is hold the entire market by buying shares in a single fund.

This is one of the best strategies for all investors, regulars, and beginners alike. By following this simple strategy, your chances of doing well in the markets are significantly higher than those with fancy investment portfolios trading on exotic platforms.

This is not to say that the strategy is the holy grail or that it will help you get rich quickly. But it’s definitely an approach that will make you the most money over your lifetime. So Sam Beckbessinger strongly recommends that you check this financial product, ETF, out.

To fully capitalize on the benefits of diversification, you should also make sure that a considerable portion of your investments is global. This lowers your overall risk even more.

Investing in foreign assets protects you when your country’s economy goes through tough periods.

Regardless of your nationality, global funds give you the opportunity to invest in the most successful businesses in the world. Think of industry giants like Samsung, Google, Amazon, Apple, Toyota, Tesla — You can own a piece of each of them. Some common global indexes you can check out include MSCI World Index, MSCI All Country World Index, FTSE Global All Cap Index, and S&P Global 1200.

Conclusion

In our society today, we have tons of choices vying for our attention. If we want to take total control of our finances, we have to be more deliberate about how we make those choices. People who aren’t deliberate about their choices spend every cent they make on other people’s ideas of what makes a good life. You’re smarter than that. Don’t let yourself be turned into a consumer or a wage slave.

Start managing your money like a grown-up by figuring out what matters to you. Once you know what you want, you can then start spending your money in line with it. Don’t try to look rich when you’re not; that’s how most people end up poor. The wealthy teach their children to live frugally until they can afford their real lifestyles. They are allergic to car loans and credit cards.

The beautiful thing about money is that the more of it you have, the more time you have to spend doing the things you love and being with the people you care about. No one lives forever, so being rich in the currency of time is absolutely essential.

Getting a handle on your finances means buying yourself freedom. It’s not only those who want designer clothes and fancy cars who should care about money — it’s anyone who wants to take control of their lives. It’s anyone who wants to attain financial independence, get out of the rat race, and free themselves from being terrified of losing their jobs.

Try this

Start managing your money like a grownup now! Don't tell yourself you'll wait till you're older before you start figuring things out. The law of compounding states that the financial choices you make now while you're young will have a much bigger impact on your life than the choices you make later. You must start right now. If your expenses are currently eating up all your income, try and cut back on the spendings. If you're currently in debt, use the strategies we discussed in this summary to get yourself out of it. Make sure a fixed percentage of your income goes into your investment portfolio regularly. That is how you get ahead.