A correct attitude about money

Few days ago, my friend and I chatted about retirement. He told me that he needs 30 million dollars when he retires. I asked him that how much money you have now. He said I don’t know. I asked him how many years later you want to retire. He answered again I don’t know. I asked him how much money you plan to save and invest each month. He said I don’t know. I have no ideas. I questioned him how do you know that you need 30 million dollars for your retired life? He said I just had this idea from TV. I told him that you really need a better financial plan and management.

The first step is to know your property that means how much money you have now. In the beginning, you should know the following 2 charts: Profit-and-loss statement and Balance sheet. From Profit-and-loss statement, you can see how much money you earn and how much money you spend and how much money you save; from Balance sheet, you can see how much asset you have, how much debt you owe and your real property.

     Once you know your properties, you should think about how to manage them. Some people who have higher income might not know how to manage their money. For example: Michel Jackson. He spent his money like water. So, the key point is the attitude of spending money.

For example, there are 2 men here; one is A, the other one is B. A’s salary is hundred thousand dollars, living expense is 60 thousand dollars, and house rent is 20 thousand dollars. So that means he can save 20 thousand dollars per month. On the other hand, B’s salary is 50 thousand dollars, and living expense is 10 thousand dollars. He is living with his parents, so there is no house rent for him. In this case, he can save 40 thousand dollars per month. From this slide, it shows that you should try to reduce your spending, and then your saving will rise.

    Here are their balance sheets. You can see that they both have savings, 3 million dollars on each own, and no debt. 

    If A decides to buy a luxurious car which costs 3 million dollars, A’s balance sheet will become this, he still has a property which is worth 3 million dollars. If B decides to buy mutual fund which cost 5 hundred thousand dollars and a house cost 4 million dollars, B’s balance sheet become like this, he also has 3 million dollars properties. Here you can see they have properties in the same value. Here are their profit-and loss statement, they are all continuingly saving 20 thousand dollars. But 5 years later, let’s see their balance sheet. We can discover there will be a big difference. A’s property becomes 2 million and 2 hundred thousand dollars. B’s property becomes 5 million and 6 hundred thousand dollars. How come there is such a big difference? The difference between A and B is where you invest your money in. A put his money in consumer property, but B put his money in capital property. You should know the difference between them. The value of consumer property will gradually go down, but capital property will gradually go up. If you want to use your money to earn more money, you should put your money in the right place.

     For example: someone puts his money in cash, stocks, mutual fund, house and saving insurance. They call this is asset allocation. It will cut down the risk of investment. So, try to reduce your spending and invest in the right place.

Remember, every investment has its risk. Don’t put all your eggs in the same basket. There is one more important thing, that is,” don’t hesitate, just do it, right now.”   Toastmaster