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Personal Finance: Manage your money and you’ll come out winning

App YNAB

One of the first things I recommend you do is put in order your Personal Finances. No matter if you win a lot or little money.

If you win little money and you struggle to make ends meet, you may think that the solution to all your problems is to earn more money, but experience shows that a lot of money is not enough. People who suddenly wins a lot of money (lottery, inheritance, divorce, etc.) tends to lose it in a few years.

If you win a lot of money, it may also be difficult to you reach the end of month. It all depends on how much money you spend.

In the one case as in the other, the problem is not in how much money you have, but how you manage it. If your relationship with money is a disaster and your goal is Financial Freedom, you must learn to manage it properly as soon as possible.

Think about your current situation. You’re working, you have a few hours available to invest in your project and you’ll spend a lot of effort to develop it. Would not it be unfortunate that when you start to see the fruits of that effort, in the form of additional income, you realize you not know how manage money properly?

Back to the Future

Do you remember the movie Back to the Future, in which the characters had a car (the legendary DeLorean DMC-12) that allowed them to travel in time? Well that’s what we’ll do now, we will travel back in time to the future. Let’s go to the moment when your projects are starting to bear fruit and you decide to leave your job as Employee.

That’s great, right?

Previously, as an Employee, you had not worried to learn about Personal Finances nor Money Management (a subject so boring and there is so little time!). Why would you worry about this? You had a fixed salary at the end of the month and if you controlled well expenses, you could survive without much trouble.

But now, that is, in your future as Entrepreneur, you no longer have a fixed income at end of month. Your income will vary each month, but also have to pay your bills and your expenses and also you will manage investments in your project. It will not be so easy to you to manage money (if it were for you before) and economic problems  would be a high risk to your new life, so that would make your projects fail.

To avoid this risk, I’ll give you two tools that I consider essential:

  • Personal Finance Training
  • Software Personal Finance Management

Personal Finance Training

After a brief visit to the future, we’ll back to the present. Note that one of the main pillars of this transition from Employee to Entrepreneur is Training. Go prepared to train you in all the topics you need to reach the goal’s Expedition. This will take time, but do not see it you as an expense, it will be one of your best investments.

Before sailing, your boat, your particular “Endurance“, has to be loaded with a Basic training and one of the important issues is that of Personal Finance. What would happen if, in your desire to go fast, you have gone to sea and at the first storm, when you break a sail, you realize that neither have the tools to repair it nor have you learned to do it? Answer you yourself.

I recommend that once you finish reading this article, you start immediately looking Internet for Personal Finance courses (may be in person or online) and books that talk about it. Then read real reviews from people who have done the course and compare the contents.

I’ve done one of these courses and I can tell you now I live much quieter. I no longer manage money looking at the bank accounts balances. I have a budget with monthly allowance to each item and the result has been spectacular. Look at the evolution of my Net Worth in 6 months, it has gone from negative to positive:

Net Worth evolution in 6 months

The Net Worth calculation that I use, is the difference between all the money that I have (Assets): current accounts, retirement plans, etc. and all the money I owe (Debts): loans, mortgage, etc. The figures in the upper right are from March 2013. Not including the estimated value of the home. Click on the chart to see in detail.

And, among other things, this is what I got:

  • Increase my Net Worth over € 15,000.00
  • Have under control all no monthly recurring expenses. Yes, those “who come by surprise”
  • An Investments account
  • Settle the car loan
  • An account for car replacement and be able to pay it in cash when the time comes
  • No surprises in car repairs, appliances repairs nor general maintenance
  • Have an emergency fund
  • Have enough money for living on last month’s income

[Update august 2014]

And to show you that if you apply what you learned in the course and you manage your money with a software as YNAB (see below), you can get things such as this that I achieved, increase my Net Worth by more than € 41,000.00 in 22 months.

Net Worth evolution in 22 months

Personal Finance Software

This is the other key part of the Personal Finance: a software that will help you in Money Management. I know that you can do it with an Excel spreadsheet, but I remember you that now and always your scarcest resource is and will be the Time.

You can save money in a bank and it will be there, even it will grow, but do you know any Time Bank? A Bank where you can save lost hours for future use.

Remember you work long hours as Employee and have very little for your projects. Therefore, any tool that help you to be more productive and get the job done in less time will be your best ally.

I’ll introduce you the one I use (and where it came the graph you saw above): It’s called You Need a Budget, abbreviated YNAB (read Y-NAB).

After comparing several applications, I chose YNAB for these reasons:

  • It is easy to use, although at first may seem confusing
  • It can be installed on all PC’s and Mac’s in your home, even in the work
  • It is not just a software, it is a system of Personal Finance Management that offers  you free online classes and other training resources
  • Has an App (for iPhone, Android and Kindle Fire) which is a real time saving tool
  • The App can be used for all the family and the information is synchronized on all mobile devices and computers (Cloud Sync)
  • It is not an application to use for recording income and expenses and then evaluate them with an eye to the past. Planning is looking ahead to be able to have all the money for the next month before you have cashed payroll.

Among all these reasons, I want to highlight the Mobile App. Whenever you are buying something and pay cash or card (credit or debit), you can record the expense even before leaving the store. You do not have to take homework to record the expenses in your Excel spreadsheet or other software. Sometimes that task accumulates and then no time is found to do it. And if we don’t do, we have already lost the battle of Money Management.

But do not forget that the software alone, without proper training in Personal Finance, not enough to make your life and your relationship with money begins to change.

And if you are a person that you like to learn more, fill out the form below and I will send, totally FREE, these two eBooks:

  • YNAB eBook
  • YNAB Works (chapter one)

And you, how do you manage your Personal Finance?

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