How to become Rich | Money Management Tips

 

Photo by Shane on Unsplash

i read two books the psychology of money by morgan hausel

and atomic habits by james clear the idea

was that we all want to manage money in

our lives and the only way to do that is

to create the right set of habits early

on in life so if you're a teenager

you'll find this relevant as we explore

money through the lengths of psychology

and also how habits can play this major role in helping us

manage our money as we grow older

spoiler we are not going to talk about

investment choices and techniques but

let's get going we are trying to help you develop

good habits towards money and

investments handling money is a soft skill where

how you behave is more important than

what you know sounds strange but let's

go through the rest of the argument it essentially means that if you know perhaps the exact trade price of a stock

beforehand or you even know the winning lottery ticket while buying it and even if you earn a windfall sum of money you

will ultimately return to your old financial situations if you don't know

how to behave right when you have earned

that money but behavior is tough to teach and here the magic of atomic habits comes into play

so what is right behavior and

perspective with money let's look at five factors one by one at

number one the man in the car paradox imagine you see a person riding a luxury car we turn our head and look and we are

impressed but we don't think wow that person is so great

that person is my role model instead what we think is imagine if i was in that car and how society will respect

 

and admire me if i ride that car the

fact is we admire the car not the person

and this applies to every show of item

you want to purchase so the desire to buy all the glitter to get admiration and respect from others

is quite a paradox

morgan housel calls this the

man-in-the-car paradox so the first

habit that we need to build to break

this paradox in our head is the habit of

asking why

example why do i want to buy that

expensive jacket when i already have two jackets or

why do i want to buy that branded bag when a regular bag will do the job ask yourself why do i need to buy this thing is it a

necessity or does it satisfy my ego in the book atomic habits james clear explains that one small change in habit

can compound into phenomenal results

this small habit of asking why before

any purchase will substantially cut your

expenses now before we move on to habit

number two drop me a comment below

telling me how you manage your money and

what habits you follow that help you at

number two the relationship of money and

time why should i even bother to earn so much

money if i don't need to buy all the luxury items and fancy cars and houses if this question is buzzing in your head i would say that's a very valid question and the answer is for a very expensive commodity called

time morgan hausell calls it control over

time a stable wealth gives you complete

control over your time this should be your biggest goal of

 

earning money or creating wealth so that

one day you don't have to work for money

you can spend your time doing things

that matter to you things that add value to your life this can only be possible when you have a stable wealth that can cover all your

financial responsibilities so what atomic habit should we build for

That the habit of savings even a small addition to your savings will eventually become a treasure so save save save like you did in the piggy bank start with about 10 of your monthly income maybe

your pocket money and gradually keep

increasing the amount at this point

overthinking where you're going to

invest it and whether you can double

that money is not that important the

core is the habit of saving and after

that

let the compounding effect take over and

before we move on to strategy number

three i would like to give a shout out

to boyana kirti for leaving this awesome

message under my last video and if you

want a shout out as well then quickly

leave a comment below with the hashtag

chetchatters at number three stop the

goal post

morgan hausel shares a story with this

perspective of money

let's say a party host was a hedge fund

manager that day he had earned more

money than the entire historical earning

of the wildly popular book catch-22 but

the author of the book was also there

 

responded on a lighter note

yes but i have something

he will never have

enough

the hardest financial skill is getting

the goal post to stop moving

last year you calculated that 500 000

let's say was the minimum wealth you

thought that was enough for you and

maybe you thought i don't have to work

for money now but this year it's become

a million

and next year it'll become 10 million

it's a never-ending race and even after

years of effort you'll feel unfulfilled

and worthless so what atomic habits

should be built to stop running on a

financial treadmill the habit of maybe a

systematic investment plan or

compounding assets this ensures that

you're not focused on the goal post but

the right path choose the right compounding asset like

maybe a mutual fund that's indexed or maybe you want to set an undeteriorating long-term habit of an sip

increase it with 20 to 30 percent every year and your wealth will ultimately blossom in the coming years at number

four reasonable wins over rational money is not some number game that you will play on excel sheets and the

formulae that will give you your returns at least this is not the case with

personal finance

when the financial advisor of morgan

housel asked him to take out a loan for

his house the loan rates were absurdly low at thetime and his advisers suggested him take advantage of the cheap money and

invest into plans with high returns it made complete sense on paper

and why not who doesn't want to get good returns but

morgan housel rejected the advice was he crazy

not really he was just psychologically reasonable he said the thought that i don't have to pay anything for my house

in the coming months gave me an immense sense of independence i don't want to take on the burden of a loan

so don't fall into the trap of taking financial decisions based on cold

rational numbers but in a state of reasonable awareness

now the atomic habit that we should build to enhance our reasonable

perception towards money is called the sdp

systematic donation plan a habit of donating a certain percentage

of money into different projects every

month will sharpen your perception to see the right use of your money

and what that money means to different people try this out and leave a comment for me below and tell me how that worked

out for you at number five is the luck factor luck is a very important factor for the success of our investments the author gives a number of examples on how luck played major roles in financial success of the most successful people like bill gates and warren buffet

but why is it so important for you to know that luck is a very important

factor in your investments just to break our illusion that we

control every aspect of our money

we think that only our decisions are responsible for the returns we get

this arrogance forces us to take some risky decisions and ultimately drags our wealth to the worst there is a very good standard to measure

your financial decision it's called a sleep test

ask this question to yourself with every

financial decision does this help me sleep at night

no investment is worth your sleep and

 

definitely not when you know everything

about your money is not under your

control so what atomic habits should we

build for this the habit of reading and listening to

financial news it increases our chances to get lucky as

we get the right knowledge to diversify

our investments into the right assets and hence reducing our risks so keep growing your money