I am going to share two secrets of money with you in this article. There’s no trickery, it isn’t some scam, there are two very simple secrets that can change your mindset about money and help you create actual personal wealth.
How many of you know someone that doesn't have enough money? I don't know about you, however, I don't want to be that person. Not that I feel bad for them or less of people without money. All I think to myself is that person was never taught what money is.
Money isn’t actually a solution to your life though. If you're already a jerk, more money will just make you more of a jerk. If you are a saint, then more money will make you more of a saint.
Ready for the first secret about money? Ok, here we go. Money is just a tool.
A tool, simple as that. Money is like a body muscle or a phone app - if you don't use it, and play the game right and follow the steps, you don't get the results.
The second secret will help quantify this first money secret. I won’t keep you in suspense, I will share it right now. The second secret is it's not how much you earn, it’s what you do with the money that matters.
You know that old saying, "It's not how much money you make, it's how much money you keep"? Well, I disagree. It isn’t how much money you keep, it's actually how well you use that money. It's the habit that's more important, not just the amount. A lot of people when they hear this, say "Once I earn more money, I will start to manage it better". I used to lie to myself like this way too. It’s not how it works. It's the habit that makes a difference.
I don't care if you're earning $2,000 per month. Maybe you are earning $5,000 or $20,000 a month. No matter the amount, it is going to be exactly the same. You'll wonder to yourself "Where did all that money go?
In fact, you'll probably have more stuff, and you're more in debt, and you have more credit card debt and all that stuff. Then you think "Oh let me get to $50,000 and I know by then, that all my money problems will go away". Guess what? They won't. It's the same thing happening.
Most people think that money has just one job, which is to spend. People who are financially smarter, know that money actually has a number of jobs, and that’s why you need a money management system. However, if you make your money management system complicated, you're never going to actually use it.
Heck, I know I would never use it. No one's going to use it. To make money work for you, you need something simple, so I use the “money bucket” system.
So what exactly is the bucket management system? Imagine one dollar that comes in. You divide it into five buckets. Simple. The first bucket is what I call your necessities bucket. This is where you pay your bills. This should be about 60% of your money. That is, for every $100 that you earn, you put $60 straight into this bucket. Your phone bill, electricity bill, your mortgage, all those bills. We call that your necessity bucket.
The next bucket is what I call your emergency bucket. 20% of your money that comes in, goes into this bucket. Emergency money means money put away for a rainy day. It could be medical expenses, or it could be something that happens to your family, so you want to have that money there.
People talk about emergency funds. I don't like to touch this money. Do not touch. It just goes into there. Don't say to yourself "Wow, we need a holiday, and that’s an emergency, so let me dip into that money". Hands off - that's not what this bucket is for.
The next bucket also keeps 10% of your money, and that's your fun bucket. We are talking your special night out, your fancy dinner, your new gadgets. When you treat yourself, like buying a new watch or something, you use that money. You never touch any of the other money.
Your very final bucket is the investment bucket. That's also 10%, so for every $100, put $10 of it aside in investment. That's your future. That's your retirement. You need to get motivated enough to keep this aside, no matter what. Your investment bucket is the golden goose. Did you know that 50% of Americans have less than $500 in their savings account? That means half of the American population is literally less than a paycheck from poverty!
Over time, I have taken some of that investment money and have invested it into learning. I've doubled-up my learning by investing in myself, to get higher income skills. Then through the high income skills it increases more income and then I should start now to fill that up.
You will find when you talk to others about the bucket system, their first reaction will be "I can't live off 60% - there's no way I could do that; that will not be enough money for my life." Then you need to calmly explain to them that they either need to either cut back on how they live their lifestyle, or they need to skill up and earn a better job, or start a side project, do something, so they can allocate 40% of their monthly earnings elsewhere, away from just being spent.
At the end of the day, it's the habit that makes the difference. Understanding money is just a tool is a great step towards this. Good luck!