Changing Your Financial Outlook with the Proper Money Mindset
If you look at the profiles of wealthy people, you will find they have a different mindset than others. They know the value of money, and they know the fundamental factors of making their money grow. If you are not yet wealthy and feel you are struggling, take some tips from these wealthy people.
An age-old idiom of money is to use compound interest in your favour. Benjamin Franklin was reportedly a big proponent of this principle. He was quite wealthy for his time, so he likely knew what he was talking about. But this concept, of compound interest, just makes sense.
What am I talking about when I say compound interest? Well, it is quite simply how you, over time, earn interest in your interest.
Here’s a quick example of what I mean. If you invest £100 and earn 10% per annum interest, then you have £110 after one year. If the interest rate remains the same at 10% per annum, in year two, you earn interest on not just the £100 principal sum that you invested but also on the £10 interest that you earned in the first year.
So, when your money grows on its own, and the money that you earn ends up growing as well, it’s only a matter of time when this amounts to a decent sum of money. And if you keep adding to the balance, that money will also grow along with it.
Use Tax-Efficient Vehicles
Now, the situation is a bit more complicated today, with the government taxing the growth of money. But, if you are in the USA, then you can invest in an IRA or 401K and have that tax-deferred until some future period. In the UK, pension plans and ISA accounts are tax-efficient investment vehicles.
Make sure you work with a qualified accountant and a financial planner to ensure you pay the least amount of taxes possible. You can of course do some work on your own, with basic knowledge, but once you start accumulating wealth. Wealthy people use experts.
Multiple Income Streams
Another principle wealthy people adhere to is creating multiple income streams. The more income streams you have working for you, the quicker you will become wealthy. When you have multiple income streams, pump up the ones performing well and dump those that aren’t.
Never Dip Into Your Savings
After you are financially well off, make sure you never touch the principal. And by the term ‘the principal’ I’m talking about the lump sum of money that you have to invest. Set up your principal to earn the most it can achieve and live only within the means of the earnings on that money. If possible, add to the principal with as much of the earnings as you can afford so that the principal grows. Never tap into it.
If you find any shortfalls, consider taking on some temporary work. Once the principal is gone, it’s gone for good.
Keep Debt To A Minimum
The final tip is to stay out of debt as much as possible. The debt will drain your savings and your portfolio. Of course, there can be clever uses of debt as long as using that debt brings in more money than the debt itself. But, most debt should be avoided to keep your financial outlook stable.
So to summarise, in order to change your financial outlook:
(1) make use of compound interest
(2) use tax-efficient vehicles to grow your wealth, where appropriate
(3) Use experts such as qualified accountants and financial advisors to help you manage your money
(4) Once you have accumulated a principal sum to invest, never dip into it, just add to it!
(5) If debt is essential to your plans, then keep it to a minimum
For a mix of practical money and money mindset tips follow me over on Instagram