I start this blog with an incredible fact for me that I became familiar with in later years of my life. I needed additional life experience, after schooling, so that I could figure it out. In primary and secondary school, they teach us everything except what we will need the most in order to have a dignified life. About money and money management.

Since we fail to educate ourselves about the money properly during that crucial period of our lives, then we are left to our parents, logically. Parents are idols of their children. Now, since your parents had not been educated about it, you have to trust that your parents are successful or that they are entrepreneurs from whom you can really learn how to manage the money, how to run a business and so on. There are 1-2% of such families. Everyone else was out of luck, one might say…

If I were the Minister of Education of any country in the world, the first next subject I would introduce into primary and secondary schools would be ‘Finances’ or ‘Personal Financial Management’.

Because of the nature of the work I do and day-to-day contact with people, I understand that introduction of this subject in schools is of great importance. It would teach people not to make stupid choices that later cause problems for themselves, their environment, city, country …

We all know some people in the society who constantly complain that they have no money, but also those who never have financial problems, regularly servicing all their obligations, traveling, always have money to pay drinks for friends, etc. People who are chronically cashless you have in your family, society, neighbourhood.

No matter how much they earn, they always lack of money. Panic at the end of the month is something that is a constant for them. In many life segments, they accept changes but in the part of financial discipline, it is a bit difficult. They are just like that. They used to do it. In most cases, they ask others to cover their minuses and irresponsible lifestyles.

 

LITTLE ANALYSIS

 

Let’s do a small analysis of one such person. And then we can compare that person to some responsible one who has never had a problem with money.

Finally, a conclusion will be drawn as to what makes the difference.

For the purpose of this example, we will name them as the ‘irresponsible’ and ‘responsible’ person. We are going to do a small analysis on how they spend their money.

First come the needs. This is something that everyone needs and it is totally ok to spend some 30% of the money on necessities. Let’s say that both responsible and irresponsible persons spend 30% of their money on this and that they are identical in this part. Okay, where are the differences?

Then, desires at the second place. The situation is changing dramatically now. The irresponsible person who is always without money, he is one gentleman who always has the latest I Phone or Samsung. As soon as the newer model comes out, he immediately changes it, although the previous model is excellent and has good speed features. He just likes to have the ‘latest’ model.

In addition, the irresponsible person doesn’t like to eat at home. Top restaurants and cafes are locations for good dining. Sneakers are his passion and he has got 30 pairs. ‘Nike‘ always releases some crazy models. Too good models. As soon as the new model comes out, he immediately goes shopping. The irresponsible person follows trends and has sneakers for tennis, running, football, city, gym… heaping up the stuff he already owns in abundance he never sees as a problem, never.

A watch collection is something that this person is simply weak at. Now, the popular Smart Watch, then the standard Seiko, Tag Heuer, Rolex are just some of the models he owns. And whenever he comes in front of a new showcase, he goes shopping without thinking. Even if there is no money. So, it can be bought in instalments!? The new car model is also being purchased on credit. Well, a car that costs €20,000 turns out to be €30,000, but he doesn’t see the problem here either. ‘Just, the smell of a new car doesn’t have ‘price’, smart guy said.

Let’s stop here, because if we start talking about glasses and jeans, the list will be too long. Let’s have a little mercy on this guy

So, this guy spends about 65% of his money on his desires.

And what’s left for him to invest? Only 5%!? So, almost nothing.

We have to say that this irresponsible guy has the excuse to act like this if he is a member of a royal family, or if he has got parents who are very rich because they can simply tolerate this attitude towards spending money. For these, the text is not intended for.

During this time, the responsible guy also has desires and good taste. But he thinks ‘a little bit’ differently. And he buys the latest phone model as well. But he doesn’t change it every year. He knows that this phone has good speed features and ‘do the job’ at least a couple of years. This guy is not embarrassed to buy on seasonal discounts when it is about the clothes. He often goes to Italy during Ferragosto. He visits a new town and do the shopping at a much larger selection and at much better prices. It has a measure in the accumulation of material things. Spiritual matters are much more important to him.

Unlike the irresponsible one, he spends about 10% of his money on his desires.

He allocates the most of his money on investments. Even 60%! So, the irresponsible one gives the most of the money to hedonism, which is a lot of money and the responsible one invests in his work, in securities, in business and in additional education. In short, he works on himself. This will later bring him everything he needs.

The irresponsible guy will flaunt his style for a while until his family and environment can handle it… And then reality will put him harshly in the position where he exactly belongs to.

On the contrary, the responsible guy will spend most of his money on:

1. Additional education (even though he has completed his studies),

2. In the new equipment he needs for the job he does, in something that will increase his value in the market tomorrow.

3. Part of the money will be invested in the development of his business,

4. Part in the shares of successful companies that regularly pay dividends,

5. Part in the life insurance policy (I wrote about that in details here).

6. One part will be even saved at the bank as soon as interest rates on savings are higher than the inflation rate ,

7. When he raises enough money or associates with someone who already has money, the option is even to invest in real estates that will ‘earn’ him extra money, through rent or sale.

What makes this responsible guy even different from the irresponsible one? He listens to successful people and analyses their behaviour and business models. He does not attempt to detect hot water, but he applies what is already proven to work.

Here are some billionaires’ tips and their stance on money that the responsible guy applies to:

• Michael Bloomberg (owner of Bloomberg Company, $34 billion): Don’t waste your money on things you don’t need.
• Ingvar Kamprad (founder of Ikea, $53 billion): Avoid unnecessary expenses. He is known for flying in economy class and driving old Volvo for years.
• Warren Buffett (investor, $66 billion): Buy the home you need. He still lives in the home he bought in 1958 for $31,500.
• Carlos Slim (businessman, $78.5 billion): The sooner you start saving and managing your savings, the later you will feel better, no matter what you do.

In the end, the picture speaks louder than words: