Money Rules & Money Awareness With Lámidé Elizabeth

The 50-20-30 Rule: A Balanced Approach to Money Management

In addition to understanding the impact of lifestyle inflation and the importance of value-based spending, it's helpful to follow structured money rules. One effective guideline is the 50-20-30 rule:

50% for Needs: Half of your income should cover necessities such as rent, bills, transportation, and education. Investing in your personal growth through books and courses also falls into this category in my opinion.

30% for Wants: Allocate 30% of your income to discretionary spending. This includes dining out, entertainment, clothing, and other non-essential expenses that bring joy and fulfillment.

20% for Savings: The remaining 20% should be directed towards building wealth. This can involve saving for the future, paying down debt, or investing.

This rule strikes a balance, ensuring your essential needs are met, your lifestyle is enjoyable, and you are preparing for the future. It's common to fall into an all-or-nothing mindset, where the focus is solely on saving at the expense of any discretionary spending. However, this approach can feel restrictive and unsustainable over time.

Finding a balance between saving and spending is crucial. While it's important to plan for the future, it's equally vital to enjoy the present. Life is about finding joy in the now while being mindful of your long-term financial goals. By following the 50-20-30 rule, you can manage your money in a way that supports both your current happiness and future security.

Saving Best Practices

Saving effectively depends on your priorities, personality, and the balance you prefer in life. It requires a willingness to commit fully and to let go of certain luxuries for a period, whether that's a year or until you reach your financial milestone.

For example, saving for a house is a significant commitment. Once you sign the contract, you're locked into a mortgage. However, it's essential to determine if this goal is truly yours or influenced by others. Perhaps a friend bought a house, and you feel the need to follow suit.

Today, many people find joy in traveling and renting homes in various cities, rather than committing to homeownership. For them, buying a house may not be the best investment unless they are purchasing an investment property. Reflect on your values and desires and ask yourself how badly you want it and why. Your goals must be genuinely yours. Pursuing goals that don't align with your true aspirations may lead to feelings of dissatisfaction, even if you achieve them.

Certain commitments, like a mortgage, can reduce your flexibility and keep you in undesirable situations longer than necessary. It's crucial, especially with significant investments, to question your motives. Investing large sums of money requires clarity and a genuine personal drive. Ensure you make these decisions for yourself and not due to external pressures.

What is the Difference Between Saving and Hoarding?

Understanding the difference between saving and hoarding is crucial, especially for women, who often face unique financial challenges. Women may sometimes be afraid to spend or invest money, leading them to hoard it. This behavior might provide a sense of comfort or safety, but it can also stem from a scarcity mindset.

Many women might accumulate significant savings, such as $50,000 or $70,000, but feel uncertain about how to use it. Often, this hesitation is driven by fear. The key distinction between saving and hoarding lies in the intention behind the action.

When you save money, you do so with a clear purpose and goal in mind. Saving is intentional and geared towards specific objectives, like buying a house, funding education, or investing for future growth. In contrast, hoarding money involves keeping it without a clear plan, motivated by fear and a scarcity mindset. This fear often manifests in thoughts like, "If I spend this money, it might not come back to me," leading to an excessive accumulation of funds.

Hoarding money can be detrimental because it overlooks the impact of inflation. Money kept in a bank account loses value over time as inflation rises, reducing its purchasing power. For example, what $100 could buy a year ago is not the same as what it can buy today due to increasing costs.

In summary, saving is intentional and focused on growth, whereas hoarding is fear-driven and rooted in a scarcity mindset. Recognizing this difference can help individuals make more informed financial decisions and avoid the pitfalls of simply holding onto money without a clear strategy.

Making Your Money Work for You

The concept of making your money work for you revolves around the distinction between assets and liabilities. An asset is something that generates income or has the potential to do so in the future, while a liability is something that incurs expenses.

When you invest and put your money into assets, you're essentially making it work for you. This can involve various strategies, such as purchasing property, purchasing businesses, starting a business, or investing in existing businesses. The goal is to allocate your funds in ways that will yield returns over time, even when you're not actively involved.

For instance, instead of solely buying a property to live in, consider investing in properties that generate rental income. While owning a home may seem like an asset, it can initially be more of a liability due to ongoing expenses like mortgage payments, maintenance, and taxes. Understanding this distinction is crucial for making informed financial decisions.

By placing your money strategically into assets that appreciate or generate income, you create opportunities for future financial growth. This contrasts with liabilities, which drain your resources without offering long-term benefits. To effectively make your money work for you, it's essential to grasp the difference between assets and liabilities and leverage this knowledge to build wealth over time.

Transitioning from a Scarcity to an Abundant Mindset

Shifting from a scarcity mindset to an abundant one involves several key steps. Education plays a pivotal role, but understanding the origins and impacts of your scarcity mindset is the first step toward reprogramming it. Identifying where scarcity-driven behaviors manifest in your life is crucial for initiating change.

For instance, reflecting on habits like insisting on handling everything independently, even when assistance is readily available, can reveal underlying scarcity beliefs. Growing up with limited resources might have ingrained the notion that self-reliance is paramount, leading to reluctance to seek help, even when it's beneficial.

Another essential aspect is recognizing your spending patterns. Identifying areas where spending feels effortless versus where it triggers discomfort provides insights into your relationship with money. While some may find joy in splurging on holidays or dining out, larger financial commitments like property investments might evoke anxiety.

Jot down your financial objectives and pay attention to any areas where doubt or strong emotions arise. These reactions can reveal underlying limiting beliefs. Reflect on occasions when these beliefs have held you back in the past or continue to do so in the present.

Engaging with literature and individuals embodying an abundant mindset offers valuable perspectives. Many with an abundant mindset view money as a tool or a game, removing the fear associated with it. They approach wealth-building with a sense of playfulness and a focus on growth rather than restriction.

Interacting with individuals who possess an abundant mindset can challenge your beliefs and broaden your understanding. For instance, learning from mentors who view leverage positively, seeing it as a strategic tool in business rather than a burden, can reshape your perspective on debt and financial leverage.

In essence, transitioning from scarcity to abundance involves introspection, education, and exposure to alternative perspectives. By understanding the roots of your scarcity mindset, identifying spending patterns, and learning from those with abundant mindsets, you can gradually cultivate a healthier relationship with money and embrace a more abundant approach to wealth creation.

In conclusion, the first step is awareness, followed by acquiring knowledge from individuals who have achieved the goals you aspire to. When delving into new learning, it's essential to filter information and focus on a few strategies that resonate with you. Mastering these initial steps will naturally unveil the subsequent ones.

Remember, the world is filled with inspiring examples of what imagination coupled with determination can accomplish. Whether it's the transformation of cities like Singapore or Dubai from humble beginnings to modern marvels, the potential for greatness surrounds us. So, embrace the journey with confidence, knowing that you have the ability to achieve anything you set your mind to.

YouTube Channels Recommendation:

The Balance Theory Podcast - Habits, mistakes & mindset to know about money w/ Lámidé Elizabeth.

Lámidé Elizabeth - Building Wealth With No Borders

The above is from a conversation on The Balance Theory Podcast.

Disclaimer: No copyright infringement intended. All credit goes to the rightful owners.