“Many people say that money is not the most important thing in life. That may be true. However, money does affect everything that is important.” – Kim Kiyosaki
Since money buys things like food and shelter (not to mention equipment and clothing) and I therefore recommend you know how to use it, I offer you some basic money terms and insights:
Things like food, shelter, equipment and clothing are expenses. Specifically, they are mandatory expenses because you need them to live. Ice cream is also an expense, but it’s not mandatory.
Though this word literally means money coming in, it is NOT the most important money word and here’s why:
There are two drummers:
- The first has $1,280 a month in mandatory expenses. He has $350 in the bank and just got a gig on a cruise ship getting paid $4,000 per month. The gig starts in Mid-February (it’s February 2nd) and he’ll get his first paycheck on April 1st.
- The second has $1,800 a month in mandatory expenses, no money in the bank, and two jobs. She stocks shelves at WalMart three nights a week and plays Wednesday through Saturday at a local club. Since she gets a $500 check from WalMart on the 1st and 15th of each month and $500 each Wednesday from the club, she got $1,000 yesterday. She paid her rent and has money left over to eat until next Wednesday.
Drummer number two is doing fine because she has positive cashflow. She has money coming in when or before she needs it. Even though he has lower expenses and a better paying gig, drummer number one is in serious trouble because he has negative cashflow.
The key to having freedom to pursue your career and life is positive cashflow even if the amount is small.
Giving keeps you grounded in the only thing that truly does matter in life, loving others. Start developing a habit of giving at least 10% of everything you earn early in your career. You will never give 10% of $100,000 if you haven’t been giving 10% of the $125 you made the other night.
Same thing with saving. Pay yourself 10% to 15% too. Money multiplies at an amazing rate so even if $12.50 isn’t much, “not much” over and over again is WAY MUCH!
- Mandatory Expenses: The simple but truly helpful advice is to keep these as low as possible for as long as possible. You’ll have better Cashflow, more to give and more to save.
- Other Expenses: You’ll also have some money to spend for fun – something you should ALWAYS do. Take a little amount of purposely set-aside money to have fun with.
Those are the basics, what did I miss?