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MONEYMoney Management Survival Guide: Reduce Expenses, Increase Incomes & Maximise Investments

Money ManagementSurvival Guide:

Reduce Expenses, Increase Incomes &

Maximise Investments To be smart with money, learn the multi-pronged

approach on how to have a sustainable lifestyle and maximise returns. By KC Lau

MONEYMoney Management Survival Guide: Reduce Expenses, Increase Incomes & Maximise Investments042

December 2012

If you ask the financial gurus around the world what are the most important rules when it comes to money

management, they might all tell you the same rules over and over again. It is so simple but yet very hard to follow. It sounds so obvious but many people prefer not to “see” it.

I would say that most, if not all, money management survival guides tell you the exact same thing. The most important rule to follow in order to achieve financial success: make more money than you spend. If you break it down further, you’ll get three components: increase incomes, maximise investments and reduce expenses.

Usually people find it more difficult to increase income and maximise investment returns. So the immediate thing they can successfully pull off, is to reduce expenses. By simply making some adjustments and cutting down redundant recurring expenses and delaying some fun shopping or vacation, you will instantly have more money to save and invest.

This might sound so obvious that it’s ridiculous to have to say it, but think about how many of us really don’t make more than we spend. People often carry huge amounts of debt and, even if they’re making the minimum monthly payments, they still owe more than they make between the principle and interest.

You want to maximise your

income for prosperity - although this is easier said than done for many people. But equally important, is to minimise expenses. This is even more difficult for people!

Let’s examine those who need money management skills desperately – these are the people who are in piles of debt.

There is a description about people who try to cover up ten holes with nine lids. They simply don’t

earn enough to pay for all their financial commitments.

Therefore, they acquire a loan to allow more

spending and as a result, there will come a time when

it is simply impossible

to even pay the monthly installments.

Our society is caught up in the cult of consumerism. People are driven to spend every last penny they make,

especially if they see neighbours or co-workers with the latest trendy item.

Once they have spent their money on the things that are necessities - housing, groceries, personal health, utilities,

transportation, and communication tools - they are enticed to spend even more money on discretionary goods and services like eating out instead of cooking, taking elaborate vacations or weekend getaways, more elaborate stereo systems, satellite televisions, giant-screen TVs, a larger house, a new car, a boat - the list is basically endless!

Make Money, Maximise Your ReturnsSalesmen are trained “not to leave money on the table” and marketers are trained to compete for every last dollar in the fear that if they don’t get the sale, somebody else will beat them to it.

If you want to have money for something that will really add quality to your life in a lasting way, some part of your money must be set aside either in savings or investments that are not too risky for you. This also means you have to keep your expenses to a minimum.

So we can now conclude that if you are able to make more money than you spend most of the time, you will be financially “okay”. But if you want to move further up with a better lifestyle, achieve early financial independence, or even get to the point of being rich and wealthy, you would need to do better than that.

If you focus on spending less than you make, you may be stagnant. You might be complacent with what you already have.

You might be limiting your imagination, thus setting an invisible boundary that prevents

you from achieving more in your life.

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The single component of keeping your expenses low is not going to bring you very far. You got to have the ability to make more money, and maximise your investment returns at the same time.

If you follow my blog, you can see that I am an advocate of not limiting yourself too much, it might suck the fun out of living an exciting life in this modern world. Instead of living below your means all the time, why not expand your means so that you can have adventures, travel the world, and even own some luxury items?

The other way to phrase the same rule is “spend less than you make”. But personally, I would prefer to hold on to the former saying. If you focus on spending less than you make, you may be stagnant. You might be complacent with what you already have.

You might be limiting your imagination, thus setting an invisible boundary that prevents you from achieving more in your life.

That’s why I prefer to look at it

the other way – always make way more money than you spend. This sparks the entrepreneurial spirit within you. This lets you dream for more. This inspires you to do more with your time, get more returns with your money and elevate your lifestyle. It brings even more quality time and money to your life, and also the people around you, especially your immediate family.

Since you are reading Smart Investor, I bet that you are actually looking for ways to successfully increase income and maximise investments. You have money to invest. You might still have debts, which is not necessarily a bad thing. But you certainly have money to invest. You want it to grow further, make it work harder and secure your financial future.

In the investment world, you must have heard about using the power of leverage. You understand that you can get rich using other people’s money. It does make a lot of sense to borrow money to invest. The deeper question is, how much

KC Lau is the best selling author of Top Money Tips for Malaysians. His popular personal finance blog is one of the most visited websites in the financial blogosphere with more than 11,500 email subscribers. You can follow his latest updates by visiting KCLau.com

gearing can you stomach, without enduring sleepless nights affected by the market sentiment?

To answer that question, it depends on how good you are in a particular investment. For example, my business partner at Bursa Method course, Peter Lim, borrows money to invest in stocks.

He is an avid stock investor practicing value investing. He uses his appreciated home value to get financing. The extra funds retrieved from mortgage refinancing and top-up housing loan is being used to get a higher share trading margin. He is using his own house equity to borrow twice! That’s very clever. But most people can’t tolerate this type of risk.

What if the market goes down? What if you can’t make the loan payment for months? What if you have to face margin call? So it comes down to how knowledgeable you are in that investment. If you know what you are doing, you won’t have fear.

In conclusion, don’t limit yourself to only look at ways to limit your spending. It is even more important to improve your moneymaking ability. Ultimately, it is the ability to maximise your investments that ensures your financial success. Work hard on these three components: reduce expenses, increase incomes and maximise investments. You’ll be in the top 5%.