How to Think About Money (in 4 Easy Steps)
Aug 10, 2024Read time - 2 minutes / Disclaimer
Today let's review how to think about money in 4 easy steps.
Knowing how to think about money gives you:
• Direction.
• Confidence.
• A starting point.
Unfortunately, money is often viewed as complicated.
Math Is Hard
Money reminds us of:
• Algebra.
• Precalculus.
• Trigonometry.
Complicated things we studied in high school.
While working in banking I learned, keeping things simple is best.
Especially with money.
Here's a simple but helpful way to visualize your money:
Step 1: Imagine You Are A Business
For example.
If your name is Josh Jones.
You run:
The Josh Jones Company
Step 2: What Is Your Business Income?
Josh works full time at a seafood restaurant.
He makes $4,000 per month.
Therefore—
The Josh Jones Company has $4,000 in monthly income.
Step 3: What Are Your Business Expenses?
Josh has the following expenses:
• Rent
• Meals
• Car loan
• Other costs
They total $3,500 per month.
Therefore—
The Josh Jones Company has $3,500 in monthly expenses.
Step 4: What Is Your Business Profit?
With $4,000 in income.
And $3,500 in expenses.
$4,000 - $3,500 =
$500 per month
Therefore—
The Josh Jones Company has $500 in monthly profit.
Conclusion
This may seem silly.
But consider this...
Your employer tracks all the money coming in.
And they track all the money going out each month.
Their #1 goal—
Make a profit.
Profits make the company more valuable.
Profits allow the company to grow from nothing to millions.
Consider viewing your personal finances in the same way.
• How much is coming in?
• How much is going out?
• Is there any profit?
Viewing money like you're running a business can be helpful.
Both people and businesses have similar goals.
• To increase their income.
• To keep expenses low.
• To invest and grow.
Keeping score is a great way to build wealth faster.
If you're just getting started, this may help:
5 Steps to Take Control of Your Finances
That's all for today.
See you next week.
