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Striking a Happy Balance Between Saving and Spending

One of the challenges of being in our modern day and age is the urge to spend more than you should. There are all sorts of products available out there, and they can easily become very distracting. As a wise steward of your personal finances, it behooves you to manage them well. The wealthiest countries in the world have a lot of capital per person, and a low amount of debt. While America is often given as an example of financial success, the typical American is heavily in debt, and they do not know how to pay it off in their lifetime. Better examples to learn from are Singapore, China, and Switzerland.

Experts generally recommend that you should live on 70% of your income. Why? This leaves a cushion for emergencies. All too often, you get people maxing out their credit cards with no end in sight. How to stop overspending? You can use a simple little rule, invented by the billionaire Warren Buffett. Would I want this item 10 years from now? It might be food, mortgage, car, entertainment, or clothes. It does not matter. Ask yourself mentally before making a purchase whether you would want the item 10 years from now. If not, reconsider it. Typically, investing in depreciable items, which lose a lot of value over time, is a very bad financial practice. Buying a new car that loses half its value in 5 years is foolish compared to buying the 5 year old car. Extreme thrift, just not having a car, is foolish as well. Most people buy more than they can afford, but you might be on the other extreme. Not buying what you need to remain effective. The law of comparative advantage says that you should do what you are unusually good at, and buy from sellers who make something that you are unusually bad at doing.

Ask yourself the following three questions to become a wealthy person:

1. What am I unusually good at doing, or strongly like to do?

This could be a childhood dream, a hobby, or whatever you do during your leisure. If you work the job that you love to do, it is likely you will work harder.

2. Who strongly desires what I am good at doing?

This is your natural market. Many people slave their whole life for a market that does not strongly desire their services. They have to compete way too hard with their peers. Be flexible to find your natural market.

3. What is my competition afraid to do to meet our natural market?

This comes from the wisdom of Warren Buffett. If you pursue what other people are unwilling to do as you find your natural market, you will get your pick of jobs. A teacher in America will have far fewer jobs than a teacher in Uganda. Why? The demand is much higher in Uganda for professional educators who speak English. There are far fewer individuals who speak English who are willing to make the sacrifices necessary to move to Uganda.

You should spend your money on things that produce something else. That is the key definition of wealth. A lot of people make the fundamental mistake that money is wealth. They then scream in panic when the next recession rolls around and takes their bank account with it. Money is not wealth. It is a way to measure wealth. Wealth consists of your time, skills, knowledge, abilities, property, certifications, shelter, transportation, food, or relationships. The more you increase your wealth, the more you will able to have enough left over.

The reason that most people do not hit it big is because they copy their peers and the mainstream experts. They do what is popular. When you do what is popular, you lose out.

Spend mostly on necessities that last for the long term. Things like water, food, shelter, clothing, and transportation. Do not waste your resources on things that are expendable.

A lot of people think that spending is bad, and saving is good. This is not always true. Spending to buy gold or transportation is much better than putting your hard earned cash in the fractional reserve banking system. Know what you are investing in when you spend. Never make the mistake again that money is wealth. Pursue things that you can use to make something else to become better at financial management.

Another good way to handle your life financial situation is to have a budget. A budget defines your goal for the week. A professional budget can be done using Microsoft Excel. You can also do one on paper. Set your goals realistically. You might be surprised at how setting a budget moderates your spending.

Another way to lower your spending is to tear up your credit cards and only use a prepaid or debit card. Consider going back to cash. When you actually see your money dissolving, it makes you a much wiser investor of your financial resources.

Never copy the failures around you. There is an enormous cultural pressure to get an expensive undergraduate education on credit, and then end up working at a coffee shop after you graduate. Know where you are going. College is only worth it if you are pursuing a highly sought after major in science, technology, engineering, math, business, or medicine.

These are just some of the tips that the wisest investors use. We look forward to serving you with more excellent information in the future.

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