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1-Page Summary of All Your Worth
Money Matters
Money isn’t what it used to be. It takes more than just hard work and a good education to ensure financial security. The rules have changed, so we need to change with them in order to succeed.
Most books about money management focus on people who already have money. They tell them to change the type of mutual funds they invest in or suggest that all their problems will be solved if they save more pennies. This advice can distract people from larger tasks at hand, such as finding ways to make more money.
The real secret to improving your finances is balance. Just as a doctor recommends a balanced diet, you need a balanced approach to managing your money so that you have enough for the present and future. When your finances are in balance, you’ll be able to pay bills and save without having to worry about debt or expenses.
The author has six steps to help you achieve financial success.
Step One: “Count All Your Worth”
To balance your budget, you need to divide your expenses into three categories: 1. “Must-haves” – These are the regular bills you have to pay every month; 2. “Your savings” – This is money that goes into a savings account for emergencies and special purchases (e.g., vacations); 3. “Your wants” – These are any other things you spend money on in a given day (e.g., lunches). Every cent of income must be allocated between these three categories each day, with no room for error or excess spending in any category. When there is an imbalance between these categories, it’s time to adjust how much money goes where so that they’re all balanced out again by the end of the week/month/year.
A few generations ago, if you had a regular job and didn’t overspend, your bills would only take up a small portion of your income.
Banks used to give mortgages based on a person’s income. They could only charge so much interest for the mortgage.
Before the financial crisis, there was no such thing as a “zero-down” mortgage; leasing an automobile did not exist; and college tuition at state universities was typically less than a dollar per day.
In the past, employees were loyal to their companies. They would stay with them for life as long as they worked hard and did a good job. Nowadays, banks are happy to give you loans even if you can’t afford them or your credit score isn’t that great. It’s not uncommon for people to clip coupons and save every penny – but still not have enough money to make ends meet. If this sounds like you, don’t worry; it happens all the time!
In the new economy, people spend more on big-ticket items than ever before. However, they also spend a lot of money on their wants. That’s not good for them either. Easy credit lets you buy things without waiting until you can save up the cash to make that purchase. If you manage your must haves and wants carefully, you probably won’t have enough money saved to put away in savings. And if it takes time to save up for something, what’s the point of working hard just to stay even? You can do much better than that by spending less and saving more
You should spend 30% of your income on wants, 20% on savings and 50% on necessities. If you have more than half of your income going towards things like a mortgage or car payments, then it’s likely that you’re overextended.
Step Two: “Escape from the Thinking Traps”
Beware of excuses that prevent you from attaining financial balance. These usually start with the word “but,” as in “I have three kids, but I can’t afford to save money.” If you use these excuses, they’ll become negative thinking traps that keep you from achieving your goals. For example, even if it’s difficult for me to attain a 50-30-20 budget split (50% towards necessities and 30% towards savings), I should strive to achieve this goal by breaking old habits and looking at things differently. Don’t blame others or even your circumstances for your financial problems; don’t let yourself off the hook so easily.
