I knew someone who could not afford to pay $300.00 for her apartment but was able to buy an X-box game for her son for more than $400.00. On top of that, she was a big smoker. I do not have anything against people who decide who blow their money in smoke as far as they can afford to do so and are responsible enough that they do not become a burden for anyone else, maybe to their property owner.
Managing money should be resumed simply as this: living within your means and putting your priorities first, financially speaking.
If you want to be financially free, do not buy things that you do not need especially with money that you do not own. Going back to the example that I gave above about the tenant who was buying an x-box for her son without paying her rent, let’s look at the financial consequences of that decision. First, she will be evicted and that will make it harder for her to rent in the future. Second, her son will not be able to play his x-box because he may be out on the street with his mother. Common sense will dictate that she pays her rent first.
Some financial mistakes to avoid:
-Credit card suicide:
If you watch TV from time to time, you have probably seen advertisements that promise to help people under credit card debts manage their financial burden. These advertisements come one because sometimes we lack the basics to manage some plastic cards that are made to be swiped in the store instead of using money. The good news with those cards is that they are easy to use in the store and they come in handy in case of emergency. The bad news is that most people view those cards as available money that can be easily used but most of the time get carried away and spend beyond what they can possibly pay back within a reasonable time.
A basic financial rule should be the following: if you do not absolutely need something, do not buy it using your credit card and anything bought using a credit card should be paid within the next month or two. Using credit card to buy items that you do not need and paying only the minimum amount requested by the credit card companies is actually making the power of compound interest work again you. It’s very counter-productive, financially speaking.
-Assets and liability:
When you look at what sets rich people apart from poor people, we easily notice that rich people tend to possess more assets and less liabilities than those who are less stable financially. In simple words, assets are possessions that put money in the pocket of whomever owns them and liabilities are possessions that take money from the pocket of whomever owns them
If you want to be rich, you need to focus on acquiring assets instead of investing your hard-earned money on liabilities, When I see young people buy expensive cars that they cannot afford and then work their tail off to pay them off when their values go down, I feel a lot for them.
Most people think that anything that they own is an asset. That is very far from reality especially if you want to get close to riches. If you buy an item and are paying interest on that while its value is going down, you poked a hole in your pocket and you need to fix that if you want to move toward riches. Most people think that in order to become rich, you need to make more money. What I believe is important is not how much you make but how much you keep