When you’re just starting out and start making some considerable money, it is always tempting to go on an all-out spending spree and start reaping the benefits of your hard work.
In fact, that’s what I did myself multiple times when I was younger.
However, there’s a reason why poor people usually stay poor, and the rich get richer. It has to do with money management.
Now, basic money management is a topic with more depth than it may seem. There’s more to effectively managing your finances than to simply save money.
No, billionaire money management is not about how much money do you spend, but rather how you spend it.
One of the core things that billionaires such as Warren Buffet emphasize is spending money as investment rather than pure pleasure.
Let me elaborate on that.
Every single dollar that you spend can be put into one of two categories: a positive investment or a negative investment.
A positive investment is something that is expected to generate a tangible net-positive return, whether directly or indirectly.
For example, a gym membership and sportswear can be considered a positive investment. The exercise will increase your productivity, prolong your life, and make you a better (business) person. Renowned non-fiction books, educational trips and an electric scooter can all be positive investments.
A negative investment is something that is not expected to generate a tangible net-negative return.
For example, seeing an action movie, going out with old friends, and staying in Hawaii for a month are all very likely negative investments.
There’s a flipside to that coin.
Many of the world’s most successful entrepreneurs, including Grant Cardone, often emphasize the importance of “jumping above your head” in order to motivate yourself to stay at that level.
This is best manifested with long-term financial commitments, rather than one-time purchases.
For example, let’s say you’re currently making $7,000 a month of pure profit.
Renting an apartment for $5,000 would be risky, to say the least, but you go ahead and do it anyway.
Once you throw a couple of parties, people around you get used to the idea that you live in this fancy top-floor apartment. You get used to that idea.
You’ll do anything in your power to make enough money to keep the apartment. You leverage the power of shame before your friends and before yourself for motivation to make extra income.
You land 2 more clients, and now you’re making $10,000 a month.
In this scenario, the $5,000 monthly rent is a very good investment.
Food for thought going into next year.