(a 12 minute read)
We at Hbound are constantly thinking about possible blog posts to write in order to help and be a source of guidance to young travelers, photographers, and entrepreneurs.
It doesn't matter if you are just playing with the thought of becoming independent, have already started running your business or if you make eight figures a year - money management is something we all have to pay attention to.
If you are making a good amount of money through your job, business, or investments you may face different problems and thoughts about money than someone who is earning a modest income as a student.
However, for each and every one the two main questions about money should be the same:
- How much money do I really need to live the life I want to pursue?
- How can I make my money work for me, instead of the other way around, so that I can enjoy a lot of free time?
In my opinion, there is nothing wrong with talking about money and your income, since every human life 'depends' on it in one way or another. We all struggle sometimes on our personal paths through this thing called "Life", why not help each other and share experiences?
I saw a video on YouTube where 100 people were asked how much money they make in a year and it became clear that a lot of people are not open to talk about money, which is not helpful.
We have to overcome this mental block and educate our children and friends about money because the news and schools fail to do so.
By remaining silent, we create a vicious cycle in which the younger generation takes over bad spending habits from society while not being educated enough about this complex topic.
I see so many young adults paying off loans they got in order to purchase their first dream car. As a result, they have less money each month to spend on important things like groceries, rent, friends, and insurance.
Driving a Mercedes AMG but not being able to pay for the burger in your favorite restaurant doesn’t look cool and that’s the reason they bought the car in the first place - probably. Most of the time they see their companions driving fancy cars and they have the urge to compete with that, which is total nonsense (read our blog post about becoming the best version of yourself)!
People are being pushed by society into thinking they need to purchase the newest phone or car and have the fanciest clothing.
This is a fundamentally wrong thought since most of the materialistic things you own don’t add any value to your life and don’t make you happier in the long run.
Actually the opposite is the case: By noticing that you are in debt and that the things you bought aren't perfect after all, you become even less happy than before and the cycle continues.
So as you can see, maybe you should hold back on making your first car purchase a big one. People will see your Audi and think ‘Oh cool, good for him’ and then continue worrying about if their new clothes look cool. On the other hand, if your ultimate goal is to drive an Audi and you finally can afford to buy one, there is nothing wrong with that, because it will create lasting happiness in your life. Cars are probably your passion and buying a new one fulfills you and that’s great!
Now without further ado, let’s jump into the top 5 money rules:
1. Control your expenses and income
The first thing I want you to do is to write down how much money you spend and earn in a month. Make sure to note the date and the reason you spent x amount of money. After one month you have a good overview of your money management and you can now adjust your expenses.
Do you really need that magazine subscription if you don’t read it?
Are you sure you couldn’t have bought a used lamp from eBay?
Now I’m not saying to cut back everything, especially not if it brings joy to your life. There are other strategies as well so that you are able to live without worrying about money all the time. It’s just a good starting point to overthink your whole cash flow and see where you may be able to adjust your spending habits.
2. Start applying the 5x rule on your purchases and also consider not buying it
The 5x rule says that if you cannot afford to buy *insert desired product* five times, you cannot afford to buy it one time. This leaves you with a comfortable puffer after you’ve made a purchase.
Another tactic would be to just wait 1-2 weeks with the purchase once you decided you want something. Waiting a short time span will truly show how much you need the product. If you forgot about it or were still living comfortably without it, reconsider your desire to purchase it in the first place. On the other hand, if you were thinking about it all day, go ahead, you’ve earned it ;-)
Most money transactions on the internet are impulse purchases. You see something pop up on Facebook with a lot of likes and comments and decide you need it as well. You click the link and get more and more convinced of the product by the description and reviews so you go ahead and buy it. With the tactic of waiting a couple of days, you won’t have that problem and can reconsider your potential purchase.
Today’s advertisements lead you down a specific funnel that is tested and perfected over a few years, so you slide down the slippery slide into the purchase.
You have to be cautious when something is advertised to you since it’s really hard to differentiate between entertaining videos and advertisements in your Instagram feed.
3. Ask yourself, "Does this product or service add value to my life?"
Minimalism is becoming more and more popular these days and I’m not just talking about photography or apparel.
Minimalism in general can also be applied to a lot of aspects of your life. To get into this lifestyle, I would recommend you watch the documentary "Minimalism" on Netflix and search for Matt D’Avella on YouTube - he's a really funny guy that started of as a freelance photographer.
Minimalism basically states that you should only have materialistic things that add actual value to your life.
This doesn't mean that you should get rid of everything you own so that you are left with three shirts, a toothbrush, and your mattress. If you're into collecting statues or you keep a ton of photo books full of memories then definitely keep them.
Just make sure that you evaluate your belongings and determine whether they are adding value to your life or not.
Minimalism is a conscious lifestyle and not a term that you would put on your business card.
It's about being content with the things you own and not seeking compensation in random material belongings and purchases.
This thought process is even more important if you start buying random stuff with the money you loaned from a bank. This will put you in a constant pressure to pay off your loan and it will eat a lot of your monthly paychecks.
That's why you should be extremely cautious with the way you use your credit card if you own one.
2. Invest your money so that you can start generating a passive income
This one is crucial when planning your future because your 401(k) will not allow a lavish lifestyle (or even any lifestyle in some cases) after your retirement.
If you want to become truly independent from the government (except taxes), start investing in stocks, commodities, or real estate - even better in all of those.
If you start early to invest parts of your monthly earnings in an ETF (exchange-traded fund) or mutual fund which are relatively safe bets, then you will have no worries once retirement approaches.
ETFs are a collection of securities, such as stocks, that track an underlying index. Because there are multiple assets within an ETF, they can be a popular choice for diversification.
For example, you can invest in the Dow Jones Industrial Average which consists of the 30 biggest businesses in the United States. If let's say, Amazon has a bad day and its stock price falls by 20% (which would be a ridiculous amount), then the Industrial Average can still perform good because other companies work and therefore perform independently.
You should know however that investing always brings a certain risk with it. You can minimize the risk by doing a lot of research beforehand or ask a good financial advisor. Prepare some questions to ask your advisor to see if he will really act in the best way possible for you.
We are not professionals and we are not claiming to be. We only want the best for you but we highly advise you to do your own research before you start investing your hard-earned money.
A question to ask could be:
How long have you been investing and what does your portfolio look like currently?
(A portfolio is basically a summary of all your investments in all the different areas.)
A job alone won’t make you rich - the same goes for investing in ETFs and mutual funds since they often mirror the average market share which is something around 6-8% annually.
If you're looking for financial security or even freedom, start investing in real estate.
Most millionaires have their money in real estate in lucrative areas around the globe, since it pays them a monthly rent from a tenant and they can hire people to look after the accommodations. You just have to make a big investment upfront and should definitely do research before doing so.
A very convenient strategy is to get a loan from the bank for example and buy an apartment in a good area. Then you let the tenant pay off the loan with the rent you collect and after a few years, you are making consistent profits. There are a ton of ways to buy houses and apartments, so you should educate yourself in that field by reading a lot of books or by browsing the internet (even websites like skillshare offer this knowledge)
My first recommendation would be ‘Rich Dad, Poor Dad’ by Robert Kiyosaki.
Other areas of investment that are really popular or growing really quickly are day trading and online currencies.
And there are dozens or even hundreds of other ways to invest your money that I won't cover in here because it would get way too long.
So if you want us to talk more about investing and topics like these, please let us know and we will deliver it to you!
But now let's move on.
5. Don’t save on the wrong ends
This whole blogpost up until now was basically about living below your means and investing smartly so that you can reap the rewards sooner or later.
However, this doesn’t mean that you should rob yourself of all fun and happiness in life.
Life is meant to be enjoyed and your number one priority should be to be happy with your current situation and yourself (more on that is covered in our other blog posts).
If that consists of buying the latest Gucci handbags, then go ahead and purchase them if you have the money.
Everybody is different and everyone has the right to live their kind of lifestyle.
Because at the end of the day, a lot of 'fun activities' cost money - activities like playing sports, partying, or traveling.
How much and where you spend your money is completely up to you.
We just want you to be mindful and know that you should be responsible for your income and savings and we are trying to do our best to help you achieve that!
And that's basically it!
Again, we are not pretending to be financial advisors or some sort of know-alls. There are probably a lot of readers out there that know more about money than we do and that's great.
We are just trying to be your peers and we don't want you to sleepwalk through life.
We hope that you learned something new today and that we could help you with your situation.
If you want to know even more about the topic of money then let us know and don't forget to read the last part.
But to everyone else, see you next time!
This last part is for all the people out there that are interested in starting their own businesses and for those who want to learn more about money.
If you want to learn more about how you can build up a six-figure business from scratch, click the link below and watch that video.
Over there you will learn step by step how you can become financially independent and how to live the life you truly desire.
They are proven methods that will be provided to you and you don’t have to get lost in an overwhelming source of information on the internet.