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Some people love money, some fear it, some don't care, and some have so much of it that they hide it in the walls of their homes. In any case, managing your money effectively is the key to building wealth over the long term.
Money management is often seen as something only the very rich do, as many people are more concerned with making sure they have enough money from month to month. In reality, everyone can benefit from consistent money management, and even small amounts of properly managed money will add up over time and help you achieve your financial goals. The key is to create an effective system that will allow you to put money aside on an ongoing basis.
What is money management?
Money management is a defined system for managing your wealth.
The management process can be broken down into five areas:
? Income: The money you earn each month, including salary, asset growth, interest, returns and profit from the sale of assets.
? Expenses: The money you spend each month.
? Spending behaviour: How you spend your money.
? Financial destination: Your goals, needs and wants and how much money you need to achieve them.
? Time and money: All your money is acquired with your time.
Why is money management important?
If you don't manage your money well, the consequences can range from not being able to generate the best returns on your income to not being able to provide for your physical needs like food and shelter.
A simple example is a savings account versus an investment in a yielding portfolio. A person who is not actively monitoring their financial health and looking to increase their wealth could simply put their extra income into a savings account each month. However, savings accounts often earn less than 1% per year (so if you have $100 in a savings account, you will have $101 after one year). While this may seem attractive at first glance (it's money for nothing, after all), 1% is actually less than the rate of inflation, which is typically 1-2% in the EU. This means that you lose money in the long run, as your savings will have less purchasing power over time.
In contrast, if you invest in a yielding crypto portfolio, such as SwissBorg's USDC Smart Yield, which a yield of 15% per year, you will have $115 after one year. This is a simple example of how taking a little time to manage your money effectively can lead to much higher returns.
On a more serious note, if you don't manage your money well, you may end up in debt at high interest rates, unable to pay your car, rent or mortgage, and unable to provide needs for your family. It is possible to become depressed.
On the other hand, if you manage your money well, it will help you pave the way to financial freedom.
Effective money management will allow you to put money aside each month. This will give you a nest egg for emergencies and unexpected expenses, whether it's getting your car fixed or covering a possible job loss.
Once you have an emergency fund, you can start using the money you set aside to build your wealth. You can do this by using the money you have saved to pay off debts or to invest. Investment ideas include investing in a yield portfolio for passive income, actively speculating in the crypto-currency market or investing in other assets such as real estate or the stock market.
Why is money management important for crypto-currency investors?
Crypto is a very volatile market, and tokens can gain and lose 10% to 50% in a single day. On top of that, there are always exciting new projects being launched, and dozens of social media influencers talking about the next big idea or trend.
This means that crypto-currency investors are likely to get carried away by their emotions - especially the fear of missing out, or "fomo" as we call it in the crypto space.
As an investor, there is nothing worse, for me, than making investments based on emotions.
Investments should be calculated, based on financial goals and follow a clear strategy. Rather than chasing the jackpot, most successful long-term investors make their money by using effective money management strategies day in and day out.
If you want to achieve substantial results as a crypto-currency investor, you need to have a clear strategy in place for your investments, including how much you plan to put into your portfolio.
What you don't measure can't be improved. That's why tools like SwissBorg's Portfolio Analytics are invaluable in giving you insight into how your investment has grown over time and where your gains or losses are coming from.
A simple money management strategy
The best place to start managing your money is to monitor your spending behaviour to see where your money is going. Once you have an idea of what you are spending each month, you will have a better idea of what you can save to pay off debts or increase your wealth.
A useful strategy for determining how to allocate your money each month is Harv T. Eker's 6-jars money management system.
6-jars money management strategy
Each jar represents a specific part of your life where saving and spending money is essential:
? 55% of your income is for basic needs like rent, food, hygiene items and bills.
? 10% should be spent on your personal education, as the most important investment is in your own knowledge! Use books, online courses, study programmes and coaching to make yourself more useful.
? 10% should go into your financial freedom account, which will generate passive income over time. These investments could include crypto yield portfolios, stocks, real estate and more - anything that you think will increase in value and/or generate income over time. The SwissBorg app offers the Smart Yield Wallet, which will allow you to generate passive income on your crypto-currency investments.
? 10% of the money management strategy is for gambling. Spending money in an outrageous way that you wouldn't dare to do in your usual spending behavior. It could be treating yourself to a 5-course meal, buying a new watch or travelling to Japan (or wherever you prefer!). The intention of this jar is to start appreciating money and the great experiences it can give you. Along with the gift jar, it will help you create a mindset of abundance while spending money to feel good.
? 10% of your funds are dedicated to long-term investments. These are assets that you invest in with the intention of holding them for a long time, for example for your retirement. This type of investment is similar to a Financial Freedom Account in that it increases your net worth over time. However, the difference is that your financial freedom investments are designed to generate income - such as cryptocurrencies that generate a return, stocks that generate dividends or real estate for which you receive rent. Long-term investments, on the other hand, are investments that you buy and hold over time, with the idea that their value will increase over time and that you can sell them in the future at a profit. So holding bitcoins for 30 years would be a long-term investment, while putting those bitcoins into a yield portfolio would turn them into a passive income generating asset.
? 5% of your income is spent on donations for social projects that are important to you. Fighting climate change and educating children in need can be great projects. Giving money to people and projects that make the world a better place will help you appreciate the power of money more. Not to mention generating positive karma that the universe will return to you by sending you money in ways you cannot imagine. It will also help you establish a mindset of abundance, which is necessary for wealth.
To set up this system, you can use digital jars if you wish . Simply, when you receive your income each month, you can transfer 10% to your education account, 10% to your financial freedom account, 10% to your gambling account, and 5% to your gifting account, leaving the remaining 55% in your transaction account for day-to-day spending. Many banks can even automate these transactions for you. Neobanks N26, Revolut and Vivid allow you to create as many accounts as you like.
From there, you can either transfer those funds directly to your allocated spending (for example, you can transfer your 10% for financial freedom directly to your SwissBorg account for investing), or let the account grow until it's large enough to spend as you wish (like a travel).
Finally, if you find that you don't have enough money left over each month for each of these jars even after cutting back on unnecessary spending, start with what you can by investing only 5% for your financial freedom.
Enjoy your money
A healthy habit to get into is simply being grateful for your money. Gratitude is a powerful feeling, and one that you can never know enough about. Let it change your mindset about money!
By being grateful and appreciating every euro I spend or invest, my investments have started to grow significantly.
Appreciation is a powerful mindset because it forces you to slow down and live in the moment, rather than getting caught up in FOMO. Therefore, by appreciating each of your assets, you will begin to invest in projects that align with your principles and ensure that you are not caught up in harmful emotions when you invest. Feeling gratitude with every investment will prime your mindset in a powerful way by ensuring that losses can be seen as lessons that teach you how to better manage your money and profits as results of your improvement.
How can you start to manage your money effectively?
? Write down all your expenses and categorize them. Are your current spending habits in line with your goals? Remove the items that don't fit your goals and spend that money on things that really matter to you.
? Start using the 6 jars money system to invest consistently to make your money work for you and your future. In five, ten, twenty or fifty years you can reap the rewards of this strategy.
? Set up recurring bank transfers so that your investments don't have to rely on you every month. This way, your money will start to grow automatically and you can start to benefit from compounding returns.
Key points to remember
? Money management is a system that helps you focus your money on what you really care about.
? By managing your money effectively, your wealth can grow significantly, allowing you to achieve your goals and dreams.
? Be grateful for all the money you have, receive and can spend, and create your financial abundance mindset.
How do you manage your money ?
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