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Master your finances!

Most of us are familiar with the idiom, "Money is power". Having money is seen as being equated with being powerful. But how do we gain power over money? Money power is a phrase we can use to describe the state when we master our finances and take control of how we manage them. Money power refers to maximising our incomes or profits, to ensure that we control money rather than money controlling us.

This week's newsletter offers financial wisdom to help you come to understand money power so that you can overcome the "tax" you are paying by not being financially literate. But please note that while this newsletter provides key insights, it should not be seen as offering financial advice and you should consult a professional and make your own assessment of your financial options.

Money power

Many people think that get-rich quick schemes like buying a lottery ticket are viable strategies for increasing wealth. But there is a great quote by Ambrose Bierce, "The lottery: a tax on people who are bad at math." As this quote suggests, people who don't understand basic calculations are likely to lose more money than they gain. To avoid becoming a victim of this "tax", wealthy people will tell you that you first have to start understanding money. You have to realise that financial success will elude you until you understand that money is earned not won. Hard work and systematic planning, coupled with a deep understanding of money power, are the only ways to ensure you reap financial rewards.

The first step

The first step to gaining power over money is often the hardest. This is because the first step is to convince yourself on the most fundamental level that you do not want to lose money and that you want money power.

While this may sound easy, it is not an intellectual decision you can simply make - it must be something that you come to believe in your heart and in your soul. It involves discovering why you have hang-ups about money and getting this out of your system. Money is not a mysterious entity always floating out of your grasp - it exists around you as a form of tangible exchange. But you need to be open to the possibility that you can potentially get more of it than you have now to start the journey towards gaining more power over money.

We are taught a lot of things about money. The older generation has the sayings, "Money does not grow on trees" and "You have to work your whole life before you will have enough money". While these old adages have some element of truth in them, more essential to gaining money power is building a positive relationship with money, otherwise no matter how hard or how long you work, money will never stay in your pocket for long.

Save

The next step is also a difficult one. Saving money can be very challenging. The amount of money you can afford to save depends on your income, your assets, and your expenses. But you should be trying to save at least 10% of your annual disposal income. This will ensure that after 10 years you have a sizeable sum saved up.

Saving is its own reward and you will soon see that adjusting your attitude towards saving changes your relationship with money. When you start seeing more ways to save - you also start seeing more ways to earn, and soon you will be starting to grow your savings.

Research also shows that having a savings mind-set goes hand-in-hand with successful saving. By looking at how you can save in everything, you start building up real money power.

It is tempting to spend money you have saved on instantly satisfying your material desires. But before you make hasty buying decisions, read the rest of this newsletter.

Budget

If you want to make and save money, there is no other alternative but to budget. What is proposed here is budgeting with a difference.

Budgets are important, not only because of the reflection of how much money you are spending, but also because of the reflection of what you are spending your money on. Your budget allows you to see if you are wasting money on non-essential items.

Some of the key questions can be compiled as an ABC budget:

    What am I spending on that is really essential? (A)
    What am I investing into - and what will it bring me? (B)
    What am I spending on that I should not? (C)

We all know that A is what we should focus on. But B is just as important - you need to look at increasing the value of shares, properties, and other investments you might have that are increasing your ability to earn.

The best sign that you are heading towards financial trouble is if you budget to spend more than you earn. This will only result in the accumulation of debt. This is why while budgeting might be hard initially; it is worth the effort because it helps you to spend within your means, while contributing to your savings account.

Budgeting is a useful tool to evaluate if expenditure is necessary. You can simply classify expenses as an A, B or C and, if you are honest with yourself, you will soon be spending money on the right things. Budgeting is linked to the controlling of expenses.

Control expenses

Controlling expenses is very important. Some people try to save by cutting down on essential spending. This is not saving - this is starving yourself and your dependents.

Controlling expenses is the art of spending money on what you are supposed to and not on what you don't actually need. In addition, if there are lower-cost alternatives to things you do need, you must pursue these instead. However, be wary of cheap imitations that lack the quality of the original product. You need to find the right balance between buying what you actually need and buying this at the most reasonable price for what you are getting.

Controlling expenses ensures that you keep as much money as possible. By understanding where your money is going, and where you are straying from your own budget, you will start to understand what is causing you to waste your money. You may have to go back to the budget many times before fully understanding where you are going wrong.

To have money power is to compare the expenses plan with the budget and see the differences and understand them. Learning from the past and using this information in the future allows us to learn more about money from the plan and budget than we may learn from any other financial format.

Invest

As your savings increase, the next step is to invest - or to make wiser decisions if you already have investments. Investing requires you to understand what you are investing in. As per a previous newsletter, you have many choices regarding investment opportunities and you should invest in the most viable, logical and financially sound of these.

Before you get carried away, make sure you know how an investment works. This means understanding the entire investment process, as well as understanding the specific investment that you are making. Make sure that you monitor an investment to get from it what you expect, and hopefully more than this.

Pay others to bring you money

One of the simple principles of investment is that you need to pay other people during the investment process. This means that you may need to pay someone else in order for you to get an eventual return on your money.

This principle applies if you invest in a financial instrument or even in starting a business. At some level you are, in essence, paying other people to bring you money. Once you realise this, you can get better at managing this process.

Cash is king

Whether you are running a mega corporation, a small business, or simply just a household, managing cash flow is very important. If you understand where the cash is coming from and where it is going to, you can plan for expenses and investments appropriately. While it is important to make a profit, it is also important to have positive cash flow.

As individuals, we often only work with cash flow and never evaluate if we are spending more of it that we earn. Both measurements are important.

Be the expert, rather than paying experts

The best way to make money is to become an expert. To determine where your expertise lies, you might like to ask yourself the following questions: What would other people employ you to do for them? What makes you an expert in your field and can you make money from this?

To really understand how this works, you may have to study how people who have proven their expertise make their money. You can assess them by asking, what do they do? We live in a world where many individuals claim to be experts. Now it is your turn to step up and be the expert in a suitable field.

You can become an expert in anything - even people who just have opinions get paid for them. Find someone who is willing to pay you for your expertise and you will be onto a winning formula. The next step may be to figure out how to offer your advice so that you can cultivate a market that can pay you for this.

Get paid for what you do

There is a mantra that states that whatever is worth doing, is worth getting paid for. This view may be slightly narrow-minded depending on a variety of circumstances, but it is always important to determine if the activities you are involved in should actually be producing money.

You can also look at making money using the ABC method we discussed earlier in order to ensure that your income is contributing to the accumulation of wealth.

Understand the hidden bottom line

A discount is usually given as a promise of conducting future business transactions. However, by offering discounts upfront, you are discounting yourself upfront by teaching your client bad habits. Clients will come to expect cheaper services or goods and they will tend to take advantage of you. It is fair to be negotiable in your dealings with people - but understand the real cost price and also the real limits in terms of what is non-negotiable.

In a negotiation you must not go below your bottom line. It is better to walk away when you reach the hidden bottom line and you realise there is no pleasing the other party without sacrificing your own profits. Never do business that does not bring profit.

Increase your ability to earn - educate yourself

Education is an investment that allows you to learn more about managing and growing your money power.

Lastly, the only difference between being poor and being wealthy is the extent of your knowledge, as well as the limits of your imagination. Real money power is available to those who know about financial concerns, but who also have the ability to visualise money power and let their thoughts translate into action that ensures the growth of their wealth.

Fuel your imagination today by teaching yourself the skills of money power as well as how to manage people and businesses, through your business studies.

Conclusion
Gaining money power is possible if you practice the tips highlighted in this newsletter. If you have the patience to save, if you can implement the financial planning and budgeting skills we discussed, if you can discover your expertise and if you work hard at cultivating your expert skills, while maintaining a healthy dose of imagination and innovation; this will ensure that you attain power over money rather than money having power over you.

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