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Money management can mean gaining greater control over outgoings and incomings, both in a personal and business perspective. Greater money management can be achieved by establishing budgets and analysing costs & income, etc. Simply put, on a personal basis, if you make more money (increase revenue or income) and/or spend less money (lower costs), then you save more. For the more technical folks among us, money management refers to the proportion of the decision maker's wealth that should be put into risk in order to maximize the decision maker's utility function. Many of us struggle to make money, or save money, or often – both. When we say struggle, there are of course different levels of struggling that we are referring to. For example, Person A who works long hours in a factory might be struggling to make ends meet, having to pay for food, rent, daily expenses, children’s school fees, etc. Person B might be a successful estate agent who makes, say US$7,000 a month but might be struggling because he has to pay off the mortgage on his large house in the suburbs which was probably beyond his means in the first place. Whether you are Person A, Person B, somewhere in between or completely different, you could still be struggling to manage your money. In the simplest sense, this is about managing inflow and outflow of cash. If inflow is always reasonably greater than outflow, then it is managed well.
Following this simple logic, we will look at potential ways to lower or manage your cash outflow (save money), and a variety of ways to increase your cash inflow (start your own business), invest in stocks, invest in property, other money making avenues, etc.
According to Wikipedia, Financial Freedom describes a well-planned lifestyle where one no longer is required to work for income to cover their expenses. More specifically, in monetary terms, let’s relate it to a sum of money that will allow you to maintain your current lifestyle for the rest of your life without ever having to work another day. Different people will have different interpretations of Financial Freedom, and depending on where in the world you reside, Financial Freedom will differ. For example, someone in a developing country, US$100,000 might be enough to be “financially free”. For someone living in a developed country, US$100,000 might only last 3 years. But think of a figure in your mind that could apply universally – say if you had US$5million, wherever in the world you might be, this amount should be sufficient to see you and your family out for the rest of your lives if you maintain a normal lifestyle. Here at PIH, we believe that Financial Freedom is one major gateway to better things in life. It enables you to become free of money concerns, and provides you with the freedom to do the things you like, whenever you like: spend more time with the family, lose weight, shop till you drop, develop those six-pack abs you always wanted, build a home for orphans in a developing country, build your own garage, etc. Money isn’t everything, but it sure does make the world go round. Most of us are bound by the need for a regular income to pay the bills or feed the family – that is why we find ourselves stuck in the office or at work for the most parts of our day, and our lives. Having given the best hours of your day, spending this time at work, giving your best (brains or brawn, or both!), you then find that whatever activities you like doing have to be done outside these hours. Only by achieving Financial Freedom can you be free of monetary worries, and liberate yourself to do many of the things you always wanted to do (to a reasonable extent). But remember, this is not a concept that applies to everyone, nor are we saying that everyone has to live life by this concept. But if you truly believe in financial freedom, then we have all the resources here for you to get started today. Robert Kiyosaki has many great insights on this concept, and one which has become a guiding principle for many of us here at PIH. A highly recommended, must-read book is Rich Dad, Poor Dad.
Another life-changing book is Cashflow Quadrant: Rich Dad's Guide to Financial Freedom.
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2. Looking for products to sell online? Can’t find suppliers? Start your own online store today! Get access to more than half a million products, shipped directly to your customers at www.webstorebestbuy.com.
3. Rich Dad's Before You Quit Your Job: 10 Real-Life Lessons Every Entrepreneur Should Know About Building a Multimillion-Dollar Business
4. The new rules of Marketing and PR
5. Advertise, Promote, and Market your Business or Website
6. Online Marketing Success Stories
Step 3: Sharpen your saw and continually improve till you get it right
Continue to improve range of products and services, website traffic volume, website design, customer communications, and other important aspects. Remember what we said on our homepage - improvement takes consistent hard work!
Additional resources:
1. Starting a small business (US context)
2. SBA Small Business Guide (US context)
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Quick and easy: Start your own online business today!
1. Set up your very own online store today
Go to the highly popular and successful Ebay to sign up for an account.
All you really need is a credit card and bank account to start selling on the internet. It is really easy to use but will require investment of time and effort in learning how to use it. But 150 million people around the world from teenagers to grandmothers use it, so it shouldn’t be too difficult a task. This is really the fastest, proven way to get an outlet to sell products – compare this with the traditional method of finding a physical location, counting the daily numbers of passers-by, estimating customer traffic, signing a contract with the landlord, setting up your store, etc and Ebay will look like a breeze.
What Ebay really offers is a giant online trading platform or infrastructure for sellers and buyers – millions of people come here to find something they want for the best price and thousands of others fulfil these needs at a profit – simple as that. Sellers are able to offer low prices because they do not have to bear the huge fixed costs associated with traditional stores like rent, storage and utilities. Moreover, Ebay helps drive customer traffic to your store – all you have to do is sell!
After registering, try your hand at selling some of your old, used stuff for a start. Besides being lucrative it’s also fun and exciting for beginners, especially your first sale. Once you are familiar with the set up, upgrade to serious selling.
2. Source for your products
Online businesses defy conventional thinking of the need for a large warehouse of stock ready to fulfil customer orders. Many Ebay sellers operate with virtual stock – they do not hold the stock, but fulfil orders through a third-party supplier who either owns that large warehouse of stock and supplies, or are large distributors with a network of suppliers. An advancement of this concept has led to the development of dropshippers – online suppliers who ship products DIRECT to your customers. You can get access to more than half a million products, shipped directly to your customers at www.webstorebestbuy.com. Of course, there are many other ways to find or get products to sell online. A good way to start is to go to Ebay, and under the “Sell” bar, click on “What’s Hot” to find the most popular items currently selling.
3. Get paid
One of the most important and exciting things when doing your own business is getting paid. And believe us its definitely one of the most difficult aspects of a business! The benefit of Ebay or most online businesses is that your customers pay you BEFORE you fulfil their orders, whether it’s shipping of goods or providing a service. No 30-day or 90-day credit terms, no bad debts – if a customer does not pay you within 7 days, you can simply open a dispute with Ebay to get your selling fee back. Paypal is an online bank that enables your customers to pay you electronically – you can then withdraw this electronic money from your Paypal account and turn it into real money in your own bank account. Sign up today for a business account at Paypal by clicking on the logo below. Good luck for your business!
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1. eBay For Dummies (For Dummies (Computer/Tech)) by Marsha Collier
2. Starting an eBay Business For Dummies (For Dummies (Business & Personal Finance)) by Marsha Collier
If you want to seriously grow your business, think about branding your online store, products, services, collateral, invoices, email, mail, and everything related. A brand is what people perceive your company stands for, a promise you give to your customers.
3. Start with having your own logo by getting one at www.biz-logo.com.
4. Get smart with your pricing strategies – price is often a good signal of quality. Premium prices are often associated with premium brands.
Investing in company stocks
Investing in stocks is a common, comparatively easy way to invest money for most people. The basic concept of “buy low, sell high” should always be a guiding principle to keep in mind. In times of good economic conditions, stock prices are often high (and some above what is called market value) due to 2 key factors: the company’s business doing well; and investor confidence (both institutional and individual investors) is high creating a buoyant market which pushes prices north of what the company is actually worth.
In less affluent times, a company’s current business might be affected, while future business (sales pipeline) is bleak or unpredictable. In addition, investor confidence will be low and market sentiments weak – this simply means that current investors pull their money out of the company’s stock (panic selling of stock to “cut losses”, hold cash or pay off their other debts, pushing the stock price down), and/or current investors do not invest more money, and/or potential new investors are now hard to come by.
The combined impact results in a stock price falling to what we call par value (what the company is actually worth, if all assets are sold off today) or below par value.
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So let’s consider a scenario: When markets are booming, more people start buying up stocks, most through a random selection much based on hearsay. The technology boom of the late 1990s is a good example, where stories of people doubling their money in a few months or getting rich overnight were rampant. Many ill-informed, inexperienced investors jump onto the "stock bandwagon” for fear of “missing out” and start buying without any knowledge of the company and the basic fundamentals of the business (how it generates revenue, in which markets and industries it competes in, profitability projections, cost base, etc). Often they enter the market late and “buy high”, ie, prices are already inflated. The lucky ones that buy early enough might make, say, 20% profit. For a stock of X Company that costs $1 per unit at the time of purchase, it is now worth $1.20.
The technology bubble burst around the year 2000 – what this triggered was panic, irrational selling to “cut losses”. Most people react by getting rid of the stock they are holding, or “sell low”, and feel relieved to have gotten rid of their “liabilities”, at a loss of say, 30%, which is “acceptable” to them. This translates to a selling price of 70 % x $.1.20, or $0.84 per unit for X Company’s stock; people suffer a realised loss of $0.16 per unit. What has essentially happened is “buying high and selling low” – contrary to why they bought stocks in the first place. The investment has resulted in a loss.
We like to call this “Sheep Theory”, because a sheep’s mentality is simply to follow the lead, or do what others do. If one jumps off a cliff, the herd is likely to follow suit, regardless of whether it’s a rational decision to start with in the first place.
Now let’s consider another scenario, where you act counter-intuitively against popular belief and market sentiment. In a recession, a company’s stock is almost necessarily lower than they what they are actually worth due to a bad economy affecting business, limited access to business loans from banks, customer defaulting on payments, etc; and/or lack of confidence on the part of market investors (both institutional and individual). This is the “buy low” opportunity that we should be aiming and craving for. Using the above example, assume we buy a unit of Company X’s stock at $0.84.
The world economy recovered and surged a few years later, for many companies to almost the late 1990 glory days. So let’s say Company X’s stock has now recovered back to $1.20, what it was worth when it was “at a high”. Selling at this price, the investor has made a 43% return. The investment has resulted in a gain.
The 2 contrasting scenarios seem to suggest that intelligent, informed investment in stock during a recession could prove to be a good strategy, especially for blue-chip stock (typically large, established, listed multinational corporations that have been around for some time with strong basic business fundamentals) which are considerably low risk. Small growth stocks are higher risk, but could yield exponential returns - this is the typical high risk, high return logic.
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It is easy to understand why Scenario 2 is difficult to do, and why so many people do not do it. It’s just not easy to look over the hill and see the green valley on the other side – you “never know when the economy will recover after a recession”. Well, the fact is that the world economy has always, yes, always recovered from a recession.
Take a look at the 100 year chart below. The green colour represents Bull (rising market), the Red represents Bear (falling market). In the past century, every Bull Market has been followed by a significant refractory period (crash) - almost generational in nature. The damage is repaired when a new crop of investors, without crash scars, finally appears.
Source: www.ritholtz.com/blog/
1. John Piper’s book: “The Way to Trade”: "Top Trader Reveals Amazing Trading Breakthrough That's Exploding The Profit Potential Of Traders Worldwide".
2. Also, check out John's "The Technical Trader Hotsheet" - killer predictions for market direction - could net you thousands of pounds per month. It contains key turning points so you can take maximum profit as you buy low and sell high.
3. Why work for a living when you can trade for a living? See "Futures Trading Course" by John Piper.
4. Learn how to invest at www.wikihow.com, www.greekshares.com, www.coolinvesting.com.
5. Get your answers at Stocks FAQ.
Investing in property
The basic concept of “buy low, sell high” applies, in general, to many investment vehicles – property is no exception. Our intention is not to go into details about all kinds of investment vehicles – there are too many types out there and we really wanted to focus on what is possibly one the most commonly accessible to the general public and most easy to understand –residential property.
Many people aspire to live in a big house; others aim to buy a large property so that they can retire comfortably. Some people focus on saving money to buy an ever-larger house; others invest in buy-to-let properties and try to make money by being or becoming landlords. In general, the investment concept should remain the same – “buy low, sell high”.
A recession often brings about comparatively cheap and good bargains. This is due to several reasons. Property developers usually take a medium to long term view of the economy when deciding whether to embark on residential development projects. You will see from the chart above that a bull (rising) market can continue from anywhere between 8 and 20 years. When property developers detect or expect a consistently improving economy, they start to build. Banks too become more open to lending larger amounts of money, so capital is readily available at increasingly attractive rates. Investors and speculators, as well as first-time home owners, start to come out of their shells and raise demand for residential housing, sparking a rush to increase the supply dramatically to fulfil this rising demand. An excess demand situation, according to basic economics, leads to an increase in price (buyers become willing to pay a higher price for a property they desire, further driven by easy, seemingly affordable access to mortgages). This drives the supply rush even further, as the construction industry works overtime to capture the supernormal profits available. To exacerbate the buying rush, property developers are becoming increasingly innovative, offering a multitude of schemes including no deposits required, waiver on first 2 years of mortgage, “own half an apartment”, etc.
From the chart above, we see that the bear (falling market) always follows the bull (rising market). Recessions, most of the time, catch property developers by surprise. Construction projects are typically long term, expensive projects; thus they cannot usually be stopped halfway, abandoned or deliver supply in a short space of time. They are therefore extremely vulnerable to economic downturns. In a recession, buyers shirk back into their shell. Investors shy away, while first time buyers adopt a “wait and see” approach, since they probably cannot get access to a necessary mortgage that the banks are now less willing to lend. Homeowners severely affected by the credit crunch start selling their investment properties and homes at lower-than-market prices in what is known as “fire sales”. Property developers start offering massive discounts on new project launches and existing property units as they become increasingly cash strapped as banks start withdrawing funding and loans. Supply quickly outstrips demand causing a rapid plunge in property prices. This is the time to buy!
The “fire sales”, the massive discounts, the good deals – these are the ones you should look out for! These make sound investments because they are now priced at or below par value (how much the property is really worth). If you have the buying and holding power, buy low and wait out for prices to rise. In most cases, property is a good investment because the intrinsic value of the property will always be there. For example, the value of a 3-room apartment in central New York or central London might fall (possibly quite dramatically in a downturn) but will almost never be worth nothing – there will always be a basic value of, say, $500,000, as there will always be a demand for them. Although it does not provide a guarantee on your capital (the amount you invested), you would not expect to lose all your money. Compare this with a small company’s stock, for example, which could possibly plunge from $0.40 in normal business conditions to $0.05 during a recession – the investor could be left with almost nothing.
Once you have bought a property, there are other money generating options besides selling it at a higher price than what you paid. Renting out the property is one example, where you become a landlord and utilise the concept of “having tenants pay your mortgage payments for you”. Another alternative is to trade up, ie sell the current property and buy a bigger, better, more expensive property. Here's an unbeatable, recommended book on property investment for beginners:
Rich Dad's Advisors®: The ABC's of Real Estate Investing: The Secrets of Finding Hidden Profits Most Investors Miss (Rich Dad's Advisors)
1. You can find general information here – click on the left navigator bars for more on “Where do I start”, “Where to buy”, “What to buy”, “When to buy”, etc.
2. How to invest in rental property.
Other online money making avenues
1. Some tips on how to make money
2. Some tips of how to make money fast
3. Some tips on how to make money online
4. 101 ways to make money online: Astounding, astonishing ways to make money online by seeking out little opportunities of arbitrage.
Recommended list of books on money management
Rich Dad's Increase Your Financial IQ: Get Smarter with Your Money
Cashflow Quadrant: Rich Dad's Guide to Financial Freedom
Rich Dad's Guide to Investing: What the Rich Invest in, That the Poor and the Middle Class Do Not!
Rich Dad's Retire Young, Retire Rich
Why We Want You to Be Rich: Two Men - One Message
Free articles & ebooks
1. Forbes article: Make money online
2. Time magazine: How to make money on the internet
 | Awesome Secret Napoleon Hill interviewed 500 extremely successful men and sieved out the success secrets into a simple formula, which took him 20 years to produce.These famous secrets are used by many self-made millionaires to create their vast fortunes. Check out these secrets that anyone can apply to create your own wealth. |
 | Blogging for Instant Profit Blogging is among the current forms of popular communication via the web. This allow web surfers to comment on a site and to offer their opinion on just about anything. While creating a website may still be too complicated for most people and usually require a small investment, which most web surfers are not inclined to take up. Blogging is a great alternative solution. |
 | The Science of Getting Rich Wallace D Wattles wrote this book after his own life was characterised by failures. Many people who have discovered,read this book and worked at applying his principles however, have indeed became rich. |
 | Infamous $10 Profit Plans Read this guide to know how to earn monies from products that can consistently earn you tidy profits over and over again. |
 | So ... You Want to Be a Writer Have you thought about putting your writing skills to good use? If you are, then you can try making money online just by using your writing skills. Read this to know more. |
More resources
1. Liveperson.com
This website gives you instant access to hundreds of experts online, with a price per minute charge. For example, you can have access to a range of professional counsellors and medical doctors for an online chat at a price of, for example, $1.79 per minute. Prices range between $1.50 and $3.00.
This translates into $107.40 for an hour’s worth of professional advice, which might sound like a lot of money at first, but if you consider that you are sat in the comforts of your own home it might be well worth your while. In addition, you can choose the preferred duration of your session, and end it whenever you like. If you do actually go to see a professional at their office, they usually charge for a full hour regardless so this is already a cost-effective method.
How to choose an expert? Well the site uses an easy to understand 5-star rating, as well as the number of reviews the expert has below it. Reviews are given by previous customers and you can also read their comments before deciding
3. Browse through wide range of products in our PIH InfoMart or search for relevant books in our PIH Bookshop.
You can also find more resources and information in our "Additional Resources" page.
* Disclaimer: This section only provides a point of view and information. It does not represent or constitute professional advice on individual financial situations or strategies – if you are looking for these, please seek alternative professional help through our links to professional resources provided herein, or through other means. We cannot be held accountable in any way for any loss arising from individual investments.
