How money works

How money works
How money works

In the following post entitled: How money works, you will be able to understand the management or administration of money, also the importance of the psychology of money, under the premise of “tell me you think about money and I’ll tell you how much you have” .

Understanding how money works

In order to understand how money works, we must start from the principles of wealth (the principle of profit, the principle of expenditure, the principle of administration and the principle of investment), focused on saving, consumption and intelligent investment, summing up in:

  • Wealth: capacity to generate profits through the effective management of finances and investments.
  • Sustainability: ability to cover its commitments and financial obligations.
  • Stability: ability to achieve commitments and generate surpluses.

In this way, these three levels make it possible to make visible the management of us, before taking control according to an already established plan (budget), with the objective that the money works for us, not that we work for the money.   How money works

In such a way that if we take into consideration, the operation of money, could be synthesized, in the way in which we make decisions and if these, are concatenated to an objective, a plan or a strategy. This form, to the extent that what you planned, materialize, can lead to your financial freedom, which will result in a state, where the money generates passive or residual income.  How money works

In such a way that we must learn to manage and build self-sustaining system of passive income, in such a way, that I want to encourage him to create strategies, with objectives that fit a planning. Because by doing it this way, you are reducing improvisation, which allows you to have a better performance in the management of your money.

With the above, it will lead to you having to adjust the way you manage your economic resources; for which, the great suggestion is that you stick to your planning, what more you can, reducing to the maximum the improvisation, and with it appealing to the psychology of money.  How money works

The first thing you should do is train yourself, find the means to educate yourself, and of course, starting from the three levels of financial management, such as: Sustainability, stability and wealth.   How money works

Here are five guidelines for money to work for you?

Guideline No. 1: Control your money.

The first guideline for money to work for you is to have control of your money. That is, be clear about what you enter, what you spend (what you earn and what you spend) and how is your monthly cash flow. In other words, you should be aware of every detail related to the movement of your money, so that you can make the adjustments of place to put to produce the collection of resources that you have achieved or have the intention to create. For this there are two tools that you can use: The budget and the expense record.  How money works

Speaking of the budget is to refer to the main tool that anyone who wants to manage their money effectively. Since the budget has two main functions, planning and the benchmark to assess personal financial performance.   How money works

The budget serves as a contrast between what was supposed to have happened in terms of financial decisions with what actually happened (ie between what was planned, what was executed and the result).   How money works

It is at this point that the recording of your expenses enters the scene. Since the only way to know what happened, in an accurate manner, is by measuring what happened during a certain period, to which you will make an allusion in each of your financial records (avoiding ant type expenses).    How money works

Guideline No. 2: Create capital strictly for investment

The second pattern presents a challenge for those who do not have the available economic resources. But at the same time, for those who have them, it also represents a challenge because one of the characteristics of a good investor is that the money he invests is not essential.    How money works

If it is translated into practical concepts, you should create the routine of separating a certain amount of money, of any income that reaches us. In the environment of financial freedom, it is known as: “paying yourself first”, later, we will return to this topic, with the distribution of income.    How money works

In other words, when you take the road of investments or entrepreneurship you should be, as far as possible, with money that you are willing to lose. Because usually satisfactory results take time. It is not something that happens overnight.    How money works

In other words, we must learn to control the risk of loss, with which we will be guaranteeing the long-term gain.    How money works

And when we say that it has to be a dispensable money we mean that it is dedicated for that. Do not take, for example, the money from your tuition, if you are studying, to invest it.    How money works

But you have a particular amount, although it took you time and effort to gather it, you are aware that for some reason what you plan is not given as expected and the losses visit your home.   How money works

In the same way it must be a money that you do not expect “to eat”, that is to say that it is disconnected from any emotion or need. Because one of the characteristics of people who invest from the stomach, is that they generate more tension and instability when making a decision. Resulting in a higher probability of committing financial mistakes.

To all this, the invitation is to start in the world of investments through financial certificates or deposit (CDT); so that you can get used to the idea of ​​separating yourself from that money that you set aside for investments, and then move on to other levels, such as the stock market or an own venture.    How money works

A good exercise at this point is to inquire at least 10 fiduciaries on collective investment funds, paying attention to the issue of profitability and volatility, elements necessary to understand the issue of profit.

Guideline No. 3: Identify your investment profile

Something that is super important for your money to work for you is to know what type of investment profile you have. That is, define your expectations, objectives and risk tolerance that you can assume.    How money works

Because if at this point you have done the previous task of the ten fiduciaries, you may have noticed, the importance of knowing your risk profile: conservative, moderate or aggressive. Since this will allow you, locate the type of investment that suits your personality.    How money works

In general, to the extent that the person advances in age, tends to make more prudential investments. Focusing on liquidity, while whoever is young assumes riskier investments. Focusing on amassing wealth over time (take into account the magic of compound interest).     How money works

This serves as a global parameter, but in reality there are different variables that affect all this investment profile, and for you to define it properly, we suggest you approach a stock exchange or financial institution that can assist you in this theme. Evaluating and determining, based on your expectations and objectives, what type of investor you are.

In general, these entities have self-applicable questionnaires, which will not take more than ten minutes, to know your risk profile. Many entities do it for free, as a policy of quality assurance.   How money works

Guideline No. 4: Invest in what you know

In four places you should invest in what you know. Do not make investments in subjects of which you have no control, since every industry has its rhythm and way of functioning; and not all people adapt to this reality.

 That is why the suggestion is that, even if you are not an expert on the subject, you have a clear idea of ​​the type of industry in which you are going to invest and how it carries out its operations. To expand this information, we suggest consulting books like millionaire-minded secrets (audio book link).    How money works

Guideline No. 5: Wait, give time to time

The fifth pattern relates to time. And it is important that you take into account that for money to work for you, you have to wait.

Do not pretend that with the first investment you will get rich instantly. Although it is fair to point out that there are extraordinary cases of people who develop an idea, and suddenly become millionaires (as), but few people achieve it, and if they do then they must work hard to maintain it.

That is why, you must educate yourself financially and above all familiarize yourself with topics such as volatility, profitability, interest rate, dollar, gold, oil, inflation etc. Without leaving aside, the magic of compound interest.   How money works

In this way, waiting is part of the key to the success of those who make their money work for him / her, because the waiting is that it develops and lay the foundations for solid growth, the one that allows whoever undertakes or invests gain experience.    How money works

This is where we must rely on resources of the intelligence of money, as is learning to transform our money pattern, and thereby ensure our financial takeoff.

Conclusion

In simple words, making money work for you is reduced to investing, and this is a process that involves taking control of your money, creating exclusive capital for investment, identifying your investment profile, investing in what you know, and perhaps more than anything else, know how to wait.

A point that escaped us, is to include our family in this process, especially our partner or partner sentimental. In such a way that they can create strategies focused on creating systems (link think and become rich).

Since assuming that the results are given quickly can cause a distortion with reality. And for that it is necessary that you have a waiting attitude so that you allow the investment to take shape and mature over time.

Please, as you are already educating yourself financially, you must learn to doubt business, which promise instant riches. The great lesson of time is called perseverance, discipline and compound interest.

In that sense, if this entry responds to What do I do to make my money work for me? You have been useful we invite you to comment and share via email or social networks. Your opinions and contributions are of great importance to this community and enrich the debate.

If you are interested in going deeper into the subject, we suggest you acquire the book Guía a Invers written by Robert Kiyosaki by clicking on the image below

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