The new year means resolutions, as many of us try to get ourselves in better shape, both physically and financially. While I’m a big advocate of regular workouts because I know how they benefit my physical health, I’m also committed to continually improving my financial health – in January and all throughout the year. You can do it, too.
Here are my tips for getting your financial house in order for the new year:
- Get your mind in gear. The first step to getting your financial house in order is to mentally prepare. Learn the basic terminology, such assets and liabilities, and know the difference between the two. Many people don’t understand what will be a true asset – a generator of revenue – versus a liability, which will drain your bottom line. For instance, despite popular opinion, a car isn’t an asset – it’s an expense. Think about it – a new car depreciates the moment you drive it off the lot. If you buy a car today and sell next year, you won’t make money on it. Instead, you’ll sell it for less than you paid. Unless you’re a taxi driver using that car for work, the vehicle won’t bring in revenue or generate cash flow for you.
- Shift your thinking. So, how do you get in the right state of mind? Shift from the thought process of spending money on non-revenue generating items, such as your personal residence and automobiles. Your home isn’t an asset. It doesn’t generate revenue or provide a cash flow. Instead, view it as an expense. Often, people will put money into their home – remodeling their kitchen, for example – thinking that they’re contributing to an asset. A new kitchen may be lovely and more comfortable for your family, but it’s not going to make you any money.
- Invest, invest, invest! Have a mindset shift and embrace investing. Rather than remodeling your kitchen or buying a new car, put your money in places that will generate money back. On a recent episode of the popular show Shark Tank, an entrepreneur pitched a business idea that he was self-funding by getting a second mortgage on his home and taking money from his kids’ college funds. One of the show’s venture capitalists or “sharks,” Mr. Wonderful (aka Kevin O’Leary) responded in his typical blunt manner, saying this man had the wrong approach. Mr. Wonderful explained that successful business people have their money work for them by making even more money. He used the example of letting your money be little soldiers for you – send them out and have them capture more money and bring it back to you. In other words, by investing, you’re generating a stream of revenue. As you earn more from your investments, you can invest more and grow your wealth.
- Stop making sacrifices. Often, when people think about saving money, they think about making sacrifices. Say they have $1,000. Maybe they’ll sacrifice by not buying coffee every day, which would save them $100/month. In that mindset, they still have $1,000, but they give up their coffee. I strongly believe that instead of making that sacrifice, I’ll just make $1,100, so I have the extra $100 to buy my coffee and still have the $1,000 in my pocket. Instead of figuring out what to sacrifice to save $100, I want to figure out how I can make MORE money so I can buy what I want. This, of course, is within reason. I’m certainly not advocating that people should go out and buy a Mercedes if they want one. But I think you can have your coffee and still have your $1,000 to spend. My point is that we shouldn’t think about how to cut corners. Instead, we should think about how to increase our revenue.
- Increase your revenue. Real estate investing can be an effective way to increase your revenue and achieve great wealth. When looking to make more money, look for a property that will be profitable. Instead of buying that new car or remodeling the kitchen in your home, invest your money in real estate. This way, you’re spending your money to make a greater return. Use a resource like my JOB + REAL ESTATE = WEALTH program to determine which property will be lucrative, and then earmark your investment dollars there.
- Change the focus. Understand the difference between spending money on an expense and investing it on an asset that will bring money back. My focus is on real estate investments, but you could certainly invest in the stock market, securing stocks that pay dividends. Regardless of how you choose to invest, the goal is to put more money back into your pocket.
- Know when (and how) to save. Saving is important, and we should all put money away in a 401K and a 529. Many people – myself included – have money automatically deposited into our savings accounts to ensure that we’re saving for the future. Once you determine how much you’re saving, then you’ll know what you have to spend, and hopefully you’ll decide to invest.
This year, rather than plotting how you can save $100 by giving up your beloved coffee – or new shoes or whatever you enjoy buying – think about how to increase your money to benefit your lifestyle. Think of your money as little soldiers – send them out and have them bring more money back to you.