Oprah Winfrey is a prime example of how being smart with money can grow your wealth. Unlike other celebrities, she used her fame and fortune wisely. By investing her money and becoming an entrepreneur, her net worth skyrocketed. Today, she’s known as one of the richest women in America. If you’re aiming to be the next Oprah, you first need to learn how to be good with money.
What does being smart with money mean?
Being good with money is such a loose term that it can mean various things. Here are four key boxes to check if you think you’re good with money.
It means having financial goals
When you’re intentional about saving and spending, everything you do with your money is to achieve something you want. This can be anything your heart desires, like homeownership or further education. When you have a financial goal, saving and making smarter financial decisions is much easier.
Your financial goals are what will give you direction throughout your financial journey. Without them, you may lose motivation somewhere along the way. If yours aren’t clear yet, here’s everything you need to know about financial goals and how to set them.
…And a plan to reach them
Having a financial goal is only the first part of being smart with money. You also want a plan to help you achieve that financial goal. Otherwise, you’ll just keep dreaming of financial success instead of putting in the work to finally achieve it.
Being smart with money means thinking about growth
Some people are too afraid to spend their money and end up saving most of it. While this isn’t a bad thing on its own, you may not be maximizing your money’s potential for growth by doing this. Instead, the smartest wealth builders view money as a resource that can help you grow wealth through various investments. That’s how the wealthy become wealthier!
Finally, it also means being disciplined
Knowing how to get rich and actually getting rich are two completely different things. If you want to be smart with money, you’ll also want to be disciplined. This doesn’t just mean saving consistently but also putting off certain purchases and taking calculated investment risks.
Why is being smart with money important?
When you’re good with money, your life will be a lot more enjoyable. You’ll find yourself spending less time worrying about losing money. Instead, you’ll be thinking about how to grow your portfolio and yourself. Here are some reasons to be smart with money.
It will help you protect your wealth
Stories from celebrities like 50 Cent show that just because you’re rich doesn’t mean you’ll stay that way. By being smart with your money, you protect your money, yourself, and anyone depending on you.
You’ll buy yourself more free time
Time is a precious and finite resource, and you don’t want to waste time worrying about money. When you’re on top of your finances, you’ll stress less about money and bills. Instead, you’ll use that time to think about things you enjoy, like traveling and your relationships.
Being smart with money also attracts more of it
When you’re smart with your finances, you won’t have to chase money–you’ll make it come to you. You’ll grow wealthier over time by taking calculated risks, making intelligent investments, and staying away from money traps. Doing all of these things consistently will turn you into a money magnet!
How to be smart with money
Being smart with money isn’t something they teach you in school. Thankfully, here are a few tips on how to be more wise with your wealth.
Stick to your budget
Your budget is how you allocate your money every month. Sticking to your budget means having enough money to meet your needs and spending at least a bit on yourself.
It’s vital that you stay within your budget because it means you’re effectively balancing your wants and needs. Otherwise, you’ll lose money over time and have to give up a few luxuries–like eating out, shopping, or traveling. Worse, you might fall into a debt hole you don’t know how to dig yourself out of.
The best budgeting trick is to earn more money so you’ll feel less constrained. That way, you’ll have more money to spend on your wants and needs. If you want to learn (and earn) more, check out the secrets of a 7-figure salary.
Automate your finances
You’re not being lazy when you automate your finances–in fact, you’re probably much smarter for it. You’re freeing up valuable time and headspace by setting up automatic bill payments and money transfers.
Spend on your personal growth and well-being
You are your greatest asset, so investing in your own development is important. Things like gym memberships, online skills courses, and books will help you maintain your health and develop as a person.
However, you don’t want to use this as a reason to justify an overpriced gym membership or book splurge. As with everything, moderation is key!
Build an emergency fund
Being smart means being prepared for anything, so you’ll want to build an emergency fund first. Sometimes called the rainy day fund, the emergency fund is a savings fund dedicated to preparing yourself in case of financial emergencies.
Generally speaking, an emergency fund should hold as much money as you can realistically save. For most people, saving at least six months’ worth of expenses is recommended.
For reference, the average American’s expenses per month are about $5,500. This would equate to about $30,000.
Take on “good” debt
Not all debt has to be avoided. Sometimes, debt is necessary to finance assets, such as a house which may not be available at a later date. In some other cases, debt can even make you money.
Study your taxes
Your taxes may cost you a lot of money in the long run. But there are strategies you can apply to lessen the amount of money you’re taxed. For example, by investing money into a retirement account, like a 401(k), all your gains would be tax-free.
Invest for the future
Investing is one of the smartest things you can do with your money. And thanks to the magic that is compound interest, you’ll be gaining even more money the earlier you start.
Investing money into popular stocks is one strategy to consider. However, you’ll want to diversify your investments among different types of accounts and funds to maximize your gains and minimize risk.
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