7 Steps to Improve your Finances!

Difficult times as this pandemic represents, have made me realize the value of the simple things that life can offer. Most of the things I have started to appreciate even more are not related to material objects. Instead, these things are experiences that can go from taking a walk through a park to gathering with my loved ones to enjoy a meal on a Saturday evening.

On the other hand, the intrinsic uncertainty that difficult times bring with them has made me also value the importance of having an order in my life. For those wondering what type of order I am referring to, it is the order obtained when consistently repeating small habits and adopting certain behaviors. These habits and behaviors, if applied with consistency, will take us closer to our goals. Once this routine and mindset are constant throughout the time, this order serves as a structure that protects us from the chaotic ups and downs that life brings.

Such order, I believe, can be found by achieving stability in different ways. However, I consider, the areas that resonate more in people to achieve this order are by having: emotional stability, professional stability, and least but no less relevant, financial stability. To attain balance in any of these areas takes a lot of time, work, and patience. However, there is one out of these three areas I consider that we, as a society, are less prepared to succeed. That is at accomplishing financial stability.

Every day people are bombarded with dozens of digital ads that provoke us to take action and buy something that we believe will make us happy. In reality. that momentaneous happiness will vanish as soon as we focus on the next thing that picks our attention. What makes this situation even more difficult is that the principles that could protect us from these impulsive buying tendency are not taught in academic institutions and probably neither at home.

“Remember, buying something is not the problem. The problem comes when we believe, for that moment, that the object we’re buying is going to make us happy.”

― Celso Cukierkorn

Thus, the objective of this article is to share the financial principles learned from an excellent book, The Richest Man in Babylon, which states, in a simplistic way, the seven rules to improve financial planning. These rules provide an efficient methodology on the subtle art of (1) how to save money, (2) how to spend it, and (3) how to generate more of it.

These principles can be applied regardless of the type of job you have and how well you get compensated for it. The main requirement to apply these principles is to think in the bigger picture. Do not only think about yourself and where you want to travel on your next vacation. Think of your future self, where and what do you want to be in 20 years from now?. It seems easy to find the answer to this question, but it is certainly not. It is something we all struggle to do. So do not be hard on yourself when realizing you have no clear answer at first.

Previous to introducing the learnings from the book Richest Man in Babylon. As mentioned, the valuable things in life are not found precisely in objects nor luxury. However, to have a roof where to live, food to eat, clothes to wear, and achieve some of our goals, money is the official medium of exchange to obtain them. Therefore, the usefulness I have found so far when applying these principles.

Seven Principles to achieve Financial Stability

1.Save 10% of the money that you earn.

When checking your bank account movements, you will realize, we usually pay to everyone but ourselves. We pay monthly subscriptions to companies like Netflix and Spotify, to the bars and restaurant owners, and so on. However, we still fail at remembering that a part of what we earn is ours to keep!

Regardless of whether 10% of your salary does not represent a significant quantity. I encourage you to think about your long-term goals and how saving that small quantity can translate into the pathway to achieve your goals.

For example, the money required to pay for the Master’s degree provides you better job opportunities. Achieving this goal will also increase the chances for better professional stability.

2. Have a budget and control your expenditures

The money spent from what we earn will bring instant gratifications that will be quickly forgotten. These instant gratifications can go from the coffee we buy daily to the small purchases we perform on the internet when we find “an offer” of an item “we need”.
However, keep in mind, it is the money that we leave in our saving accounts that will help us obtain substantial belongings aligned with our long-term goals.

Define what your necessary expenses are. Do not confuse what is essential with desires!

3. Do not just save money. Put the money that you have saved to produce more money.

Money in the bank account is a good start, but it is only the beginning. It certainly is gratifying to see how the saving accounts keep increasing periodically. Nevertheless, the money piling up in our saving accounts will not earn us anything. Hence, the importance of investing money wisely to bring more income besides our monthly salary.

A recommended way for young adults to invest money is through financial consulting companies that will ensure a return of investment from medium to long term periods.

* Please find at the bottom, a reference company located in Europe.

4. Invest only where the principal is safe and where you can take it back. Also, consult only with experienced people.

Assuming an opportunity not related to investing money in a financial consulting company is presented to you. Do not get misled by the idea of getting wealthy rapidly since nothing is easy, and if it sounds like that, you should be careful. Instead, use the wisdom provided by experienced people to protect you from making unsafe investments. Better a little caution than a great regret.

Remember that wealth that comes quickly, goes the same way.

5. Own your own home.

With time, the savings and the invested money that has been generating a continuous income stream will provide you an incredible reward. The capacity to make what people consider to be the most significant investment in life: buying a house.

So, when the money in your savings account allows it, instead of paying the owner of your rented apartment. Invest that money in the bank that will provide you the mortgage to live in the place that you want.

Tip: Nowadays, there is an innovative business model that is facilitating young professionals to buy a house without the need to give down payments that otherwise would have taken them years of saving. This new business model is called Smart Housing.

* Please find at the bottom, reference companies in this new business industry located in Spain.

6. Think of investing small but regular sums of money that will ensure you and your family a secured future.

Give a thought to the future. Thinking about our future-self in 40 years from now feels very distant. Therefore, we believe we should not worry about it right now but in a couple of decades. This logic is a mistake we can avoid by giving it a thought earlier.

Even though a retirement plan sounds premature to consider in your late 20’s, this is something that older people regret the most when reaching a certain age. Consequently, realizing their savings account not being as planned and becoming a burden to their loved ones, which could have been prevented with better planning.

Consider a retirement plan where small payments with regularity will ensure profitable results that protect you and your family.

7. Cultivate your knowledge

More important than just having a plan of how to save, earn, and generate more money. It is to educate yourself. Continuously cultivating your knowledge will have the same snowball effect that saving periodically small sums of money has. Improving skills and becoming wiser will not only make you feel more confident when achieving your goals. It will help you improve your professional and emotional stability as well.

The following rule is not a principle within the Richest Man in Babylon. Nevertheless, it is mentioned multiple times throughout the book. Therefore, I believe it is worth pointing it out since this situation might probably happen to you if it hasn’t happened already.

8. Have compassion upon those in necessity and aid within reasonable limits.

Financial difficulties can happen to anyone at any time, which reflects the importance of not only investing the money earned but also having a savings account that can come useful if necessary.

Unfortunately, this is a situation that can happen not only to you but to your family, friends, colleagues, and acquaintances. However, not everybody has the planning, organization, or the luck to take care of themselves through difficult times. Therefore, as we have heard before, desperate times bring desperate measures. In this scenario, the desperate action would be to ask for money from your family, friends, or acquaintances.

Assuming you are one of the people that receive the request from your family or friend to lend money under an unexpected circumstance, take into consideration that it is OK to help but you do not have to do it by taking the burden of your friend or family. There are other ways to help that not only consist of directly transferring money.

“Planning is bringing the future into the present so that you can do something about it now.”

― Alan Lakein

To conclude, I believe the key factors to improve financial stability is hard work, constant discipline, and knowledge.

Work is the medium that will bring respect, honor, and the goals that you desire the most. However, these goals are not recommended to be general desires because these become weak with time and hard to measure. Instead, define finite desires which can be pressed and tracked.

Consistency and discipline as the way to keep you motivated as you progressively get closer and closer to your defined goals. When feeling your effort is not being compensated, imagine yourself achieving one of those significant goals you have. This visualization will boost your motivation and keep you on track when feeling tempted to make unnecessary expenses.

And knowledge as the tool that will help you become wiser, get compensated better for your hard work and take better decisions when carefully investing your money.

Hopefully by now, you have given a thought to these principles to be applied in your near future. And for those who claim these principles to be very difficult to adopt all at once, I most certainly agree. However, you have to start somewhere. Even if it is by just saving a small amount of money each month until you get better and better at defining your financial planning.

“The most important thing about getting somewhere is starting right where we are.”

-Bruce Barton

Reference companies:
Smart-housing Companies in Spain: Vidoqui and Libeen
Instagram accounts:
@vidoqui_es
@libeen.smarthousing

Financial consulting company in Europe: OVB
Recommended OVB financial advisor in Spain: @davidfinanzas.es (IG account)