Recently, I was telling someone that free money is terrible, really terrible. You receive some money gift today, the next moment you have more than halfway exhausted it. That is the time you remember all the enjoyment you have always desired to have and you now remember the purchases you have not been able to make.
But wait a minute. Is money really the terrible entity here? Money is inanimate, it cannot control itself. Yeah, maybe it can control you a little bit like you know monetary power just like other forms of power can control who is wielding it and if it does, it only points to the fact that you are not able to control it.
From all indications, you are the terrible one here. The money you receive, even though freely, should be accounted for. This is what financial management entails.
Technically, financial management refers to the planning, organizing, directing and controlling of financial activities such as procurement and utilization of funds of an enterprise. It involves applying general management principles to the financial resources of the enterprise.
The technical definition of financial management above may relate to the enterprise, that is, your business or business-related activities but your personal finances, including how you spend your monetary incomes can greatly impact your business(es). Your personal spending pattern is your first enterprise and properly managing your personal finances is a very important skill you must acquire if you are going to succeed financially.
Why Free Money Intoxicates
Not backed up by any research evidence but the money received freely have a higher chance of being wasted. Even worse is money gotten through fraudulent means. This aligns with the principle that effort adds value to something, and people value what they work for more than those they get freely.
Adam Smith, a Scottish economist and philosopher who was regarded as the father of Economics, puts it this way;
“The real price of every thing, what every thing really costs to the [person] who wants to acquire it, is the toil and trouble of acquiring it.” – Adam Smith
Here is another by Mahatma Gandhi, the renowned Indian Lawyer and political activist;
“Satisfaction lies in the effort, not in the attainment, full effort is full victory.” – Mahatma Ghandi
According to a study published in 2018 by the Trends in Cognitive Science Journal, several models were proposed and validated to explain that efforts produce value.
For example, it was demonstrated that people donate more to charity when the fundraising process is expected to be painful and effortful rather than easy. An effort is often linked to rewards, and because humans seek out rewards, it logically interprets that the more effort you put into getting something, the greater your reward will be.
Everyone wants to live an easy life with minimal effort but psychology has explained that we naturally place more value on things we get at a cost. In short, according to a post by Ramit Sethi of Business Insider, he explains that people only value what they pay. Ramit Sethi is a finance writer and author and in that post, he opened up about the decision he took some time ago to stop giving out free courses to people who were interested in learning a skill or two from him.
He also noted the words of Jessica E (profile description undisclosed) who revealed that a prospect was willing to pay $2,600 monthly for three months to get an offer from her. Not only was the prospect willing to pay but he actually did fulfil the payment totalling $7,800 over the three months.
People who understand that their brain or mind (anyone you would choose) values what cost them over what they get too freely go the extra mile to pay the price but this cannot be the new American dream –despising the value of free money just because you naturally do not place much value on them.
Considering that a good percentage of your income in your life comes either as free gifts or offers, it becomes important to state that the real goal is to be able to manage every money you receive, irrespective of which route you receive it from.
Do you know that “Free” is attractive but wasteful?
Despite the fact that people naturally manage free money and things less efficiently, psychology has also demonstrated that people are naturally attracted to free things, only to frivolously spend it. Nature appears to be wasteful in this regard, just like the scientific concept of entropy that explains why everything naturally tends towards disorderliness.
Just if you are curious about what entropy talks about, a good illustration is how your room becomes scattered a few days after you go for a short trip. Even without efforts from nobody, you can also notice that the pin you dropped on the table is not in the same position a few hours after you dropped it. This explains the natural tendency towards disorderliness.
So, why gravitate towards “free” things when you cannot manage them adequately? Entropy, once again. To explain the influence of the “free” tag on our actions, let me give this short illustration.
In the social experiment conducted by Chris Anderson and published in his book, “Free: The Future of a Radical Price”, he noted that people, who initially chose a chocolate truffle sold to them at ¢18 (18 cents) over a chocolate kiss sold at ¢1, later changed their preferences when the price of chocolate truffle was reduced to ¢1 and the chocolate kiss given to them for free. The price of the truffle was reduced over wide margins but the “free” tag on the chocolate kiss made people go for them instead.
In his explanations, Chris described that customers initially preferred the truffles to the kiss even though they were more expensive because the truffles were less available. This made them harder to get, thus adding to their value. However, the moment the chocolate kiss became free, it completely out-shadowed the truffles even when the price of truffles was also reduced to 1 cent. Thus, “expensive” is preferred to “cheap”, while “free” is preferred to both “expensive” and “cheap”.
Why You Must Learn To Avoid Wasting Money Received
The story that evoked that statement in the opening paragraph of this article was based on my personal experiences with free money. I noticed that I let down my financial guard whenever I received the money in the form of gifts. It is as though the money had no value, I end up spending it carelessly.
But on a closer look, I realised that money could be a potential source of expansion and growth of my personal finances and business. So, I decided to learn ways to harness it efficiently and minimize wasting it. No doubt, you should be allowed to spend a small proportion of your free money on some of your lustful fantasies, like that fancy wristwatch you have always admired but it is important that you keep this at the minimum percentage ever possible. You need to treat free money as part of your resources just like the others you worked for. This way, you can give your finances and business a bigger boost.
Many people complain of insufficient funds to execute their business projects. Startup capitals are hard to get but do you know that some of the free money many of us throw away are potential sources of funds for your business?
When you make a free money offer, only serious-minded people immediately think about how to put the money to productive use. More often than not, the rest reflexively begin to ruminate on expenditures on goods of less productive importance like buying a luxury car, going to the Chinese restaurant with a bunch of friends, and so on. Some of these wants may be important but this should not be made to override what you can use that money to achieve productively.
Lack of financial management and accountability skills have made put people in a loop from abundance to financial drought and back again continuously. This is especially true for most monthly salary earners, with periods of abundance immediately after receiving their salary payments and then, droughts shortly into the middle of the month.
Also, many great entrepreneurs have been able to turn small funds into great fortunes. The difference lies in the fact that these entrepreneurs developed their financial management skills to be able to manage the money they receive and convert it into productivity, regardless of the fact that some of that money was obtained freely.
3 Ways To Stop Wasting Free Money After Receiving It
If I give you $1000 right now, what would you do with it? Trust me, in interview sessions, answers to this question are usually very fantastic but in reality, the observable attitudes of people can be very different and unpredictable.
As easy as it may seem, managing money received with little or no effort from you is not that simple. You need to be deliberate about learning ways to stop wasting your free money after receiving them. Here are some things you should learn to do to minimize wastage.
- Have a change of mindset
- Adopting budgeting
- Be accountable/track your spending
Have a Change of Mindset
The first thing you must do to be able to channel your free money offers into productive use is to have a change of mindset. The mindset that everything free does not have value, though seemingly innate in every one of us, must be deliberately discarded.
Just like this mindset, we have many other innate tendencies that may turn out to be undesirable and need to be discarded as well. For example, humans are naturally greedy and discontented with things, never satisfied no matter what you give or do. Are you just going to sit back and allow these pre-set mindsets and traits to determine everything about you?
Adopting Budgeting
Budgeting is one simple financial tool that cannot be over-emphasized. Budgeting refers to how you plan or allocate your financial resources. From the definition of financial management, the planning there represents budgeting, making budgeting an integral component of every successful financial year.
One of the best ways to minimize wasting your free money is to adopt strict budgeting. You should always share your money across all your financial needs and wants even before you begin spending it. This gives you an acute sense of responsibility and control, such that you would more rationally apportion your fund to the different needs/wants in order of importance.
Be Accountable/Track Your Spending
In finance, inventory keeping entails keeping track of income and expense while budgeting involves the allocation of resources, money in this case, to different aspects of the business. Budgeting and inventory keeping requires careful documentation – they need to be written down.
Being accountable for your spending help you know what you need to improve. Very often, we spend without even remembering how the money went. This can be avoided by carefully recording your spending at the end of the day to know where you may need to improve. This subconsciously programs your minds to reduce wasteful spending on subsequent days.
There are three categories of money you should account for as follows:
1. Account for Cash at Hand
If you must be able to manage free money properly, you must be able to manage the money you already have at hand. If you are able to keep track of the money you already have, you can easily add new money received from any source including free gifts to your current finances than when everything was disorganized from the start.
Also, the awareness that you are going well in your financial management spurs you to even be more accountable to new money you receive as gifts or otherwise.
Accounting for your cash at hand means that you should be able to make and implement a budget from your available funds in a way that caters for your basic needs while still sparing you some extra money for investment.
It is important to understand that great accountability is not exactly dependent on the amount of money at your disposal. Even people with very comfortable money incomes can run into financial crises while those with more limited incomes but with good financial accountability fare better and grow their finances over time.
The secret to sustaining wealth is building it from scratch. The process of building wealth requires that you first learn to be accountable to your money at hand, otherwise, you won’t get there in the first place. This is where free money, both as capital and luxury gifts becomes a problem.
2. Account for Expected Money
Have you noticed that you sometimes spend money you have not yet received? You are expecting a payment, or someone promised you some amount of money but you already purchased goods on credit awaiting them. This is dangerous and detrimental to your financial growth for several reasons.
First, you cannot be too sure of what you have not received. Anything can still happen as long as it is coming from humans with questionable reliabilities. Several factors can affect these outcomes, even sometimes beyond the control of those who are supposed to give/pay you the money.
Secondly, if you spend money before you receive it, your financial status will always fall toward zero because you allow your debts to dry up your incomes. The best way to handle this is by avoiding debts as much as possible until your money arrives and then, spend based on your budget.
If there are items you absolutely need to purchase on credit, you must ascertain that they are basic needs you cannot live without, otherwise, they can wait.
3. Account for Unexpected Money
When you are making a short term budget like a shopping list, you always include a row for miscellaneous, don’t you? Miscellaneous stands in for anything you may have missed out or which you may not have been able to envisage – referred to as contingencies.
This normally comes out in one form as a “to-buy” list containing items or services you need to purchase, pending when money comes into your hand. The other side that makes it a proper accounting for unexpected money also aligns with the point of having a change of mindset to managing money receipts. This means you are going to take all money that your receive as potential sources for your financial demands expressed on your “to-buy” or “to-purchase” list.
This way, you are accounting for the money you never see coming as though they were a miscellaneous source of income and not different from what you already have or expect to receive. These come as free money most time but you must learn to avoid wasting them by orienting your mind towards productive spending.
How To Use Free Money To Fill Up Business Vacuum
One of the best ways to identify opportunities when they come is by preparing for them. No wonder they say, opportunities come to the prepared minds. If you are a project-driven entrepreneur, you can effectively fill up the financial vacuum in your business if you keep track of your projects’ financial needs and the money that you receive. By project-driven, I mean, you are someone who formulates business plans to execute sometime in the future.
If you plan your business projects well enough way before you get the money required to execute them, you would always know when to put the money when it finally shows up, as opposed to when you do not have a pre-existing plan on what to do. In other words, you can use funds from free money sources to fill up business vacuums if you plan ahead, failure of which may result in under-utilization and misappropriation of resources.
Final words
You have seen that free money, just like other free items, may be associated with wastage because people consider what they work for significantly more valuable than what they get freely. Even though that is the case, those free money can become a very good source of business capital or seed for business growth if properly managed. Here in this article, I hope you have learnt some new great ways to manage your free money and stop wasting it after you receive it.
Recently, I was telling someone that free money is terrible, really terrible. You receive some money gift today, the next moment you have more than halfway exhausted it. That is the time you remember all the enjoyment you have always desired to have and you now remember the purchases you have not been able to make.
But wait a minute. Is money really the terrible entity here? Money is inanimate, it cannot control itself. Yeah, maybe it can control you a little bit like you know monetary power just like other forms of power can control who is wielding it and if it does, it only points to the fact that you are not able to control it.
From all indications, you are the terrible one here. The money you receive, even though freely, should be accounted for. This is what financial management entails.
Technically, financial management refers to the planning, organizing, directing and controlling of financial activities such as procurement and utilization of funds of an enterprise. It involves applying general management principles to the financial resources of the enterprise.
The technical definition of financial management above may relate to the enterprise, that is, your business or business-related activities but your personal finances, including how you spend your monetary incomes can greatly impact your business(es). Your personal spending pattern is your first enterprise and properly managing your personal finances is a very important skill you must acquire if you are going to succeed financially.
Why Free Money Intoxicates
Not backed up by any research evidence but the money received freely have a higher chance of being wasted. Even worse is money gotten through fraudulent means. This aligns with the principle that effort adds value to something, and people value what they work for more than those they get freely.
Adam Smith, a Scottish economist and philosopher who was regarded as the father of Economics, puts it this way;
“The real price of every thing, what every thing really costs to the [person] who wants to acquire it, is the toil and trouble of acquiring it.” – Adam Smith
Here is another by Mahatma Gandhi, the renowned Indian Lawyer and political activist;
“Satisfaction lies in the effort, not in the attainment, full effort is full victory.” – Mahatma Ghandi
According to a study published in 2018 by the Trends in Cognitive Science Journal, several models were proposed and validated to explain that efforts produce value.
For example, it was demonstrated that people donate more to charity when the fundraising process is expected to be painful and effortful rather than easy. An effort is often linked to rewards, and because humans seek out rewards, it logically interprets that the more effort you put into getting something, the greater your reward will be.
Everyone wants to live an easy life with minimal effort but psychology has explained that we naturally place more value on things we get at a cost. In short, according to a post by Ramit Sethi of Business Insider, he explains that people only value what they pay. Ramit Sethi is a finance writer and author and in that post, he opened up about the decision he took some time ago to stop giving out free courses to people who were interested in learning a skill or two from him.
He also noted the words of Jessica E (profile description undisclosed) who revealed that a prospect was willing to pay $2,600 monthly for three months to get an offer from her. Not only was the prospect willing to pay but he actually did fulfil the payment totalling $7,800 over the three months.
People who understand that their brain or mind (anyone you would choose) values what cost them over what they get too freely go the extra mile to pay the price but this cannot be the new American dream –despising the value of free money just because you naturally do not place much value on them.
Considering that a good percentage of your income in your life comes either as free gifts or offers, it becomes important to state that the real goal is to be able to manage every money you receive, irrespective of which route you receive it from.
Do you know that “Free” is attractive but wasteful?
Despite the fact that people naturally manage free money and things less efficiently, psychology has also demonstrated that people are naturally attracted to free things, only to frivolously spend it. Nature appears to be wasteful in this regard, just like the scientific concept of entropy that explains why everything naturally tends towards disorderliness.
Just if you are curious about what entropy talks about, a good illustration is how your room becomes scattered a few days after you go for a short trip. Even without efforts from nobody, you can also notice that the pin you dropped on the table is not in the same position a few hours after you dropped it. This explains the natural tendency towards disorderliness.
So, why gravitate towards “free” things when you cannot manage them adequately? Entropy, once again. To explain the influence of the “free” tag on our actions, let me give this short illustration.
In the social experiment conducted by Chris Anderson and published in his book, “Free: The Future of a Radical Price”, he noted that people, who initially chose a chocolate truffle sold to them at ¢18 (18 cents) over a chocolate kiss sold at ¢1, later changed their preferences when the price of chocolate truffle was reduced to ¢1 and the chocolate kiss given to them for free. The price of the truffle was reduced over wide margins but the “free” tag on the chocolate kiss made people go for them instead.
In his explanations, Chris described that customers initially preferred the truffles to the kiss even though they were more expensive because the truffles were less available. This made them harder to get, thus adding to their value. However, the moment the chocolate kiss became free, it completely out-shadowed the truffles even when the price of truffles was also reduced to 1 cent. Thus, “expensive” is preferred to “cheap”, while “free” is preferred to both “expensive” and “cheap”.
Why You Must Learn To Avoid Wasting Money Received
The story that evoked that statement in the opening paragraph of this article was based on my personal experiences with free money. I noticed that I let down my financial guard whenever I received the money in the form of gifts. It is as though the money had no value, I end up spending it carelessly.
But on a closer look, I realised that money could be a potential source of expansion and growth of my personal finances and business. So, I decided to learn ways to harness it efficiently and minimize wasting it. No doubt, you should be allowed to spend a small proportion of your free money on some of your lustful fantasies, like that fancy wristwatch you have always admired but it is important that you keep this at the minimum percentage ever possible. You need to treat free money as part of your resources just like the others you worked for. This way, you can give your finances and business a bigger boost.
Many people complain of insufficient funds to execute their business projects. Startup capitals are hard to get but do you know that some of the free money many of us throw away are potential sources of funds for your business?
When you make a free money offer, only serious-minded people immediately think about how to put the money to productive use. More often than not, the rest reflexively begin to ruminate on expenditures on goods of less productive importance like buying a luxury car, going to the Chinese restaurant with a bunch of friends, and so on. Some of these wants may be important but this should not be made to override what you can use that money to achieve productively.
Lack of financial management and accountability skills have made put people in a loop from abundance to financial drought and back again continuously. This is especially true for most monthly salary earners, with periods of abundance immediately after receiving their salary payments and then, droughts shortly into the middle of the month.
Also, many great entrepreneurs have been able to turn small funds into great fortunes. The difference lies in the fact that these entrepreneurs developed their financial management skills to be able to manage the money they receive and convert it into productivity, regardless of the fact that some of that money was obtained freely.
3 Ways To Stop Wasting Free Money After Receiving It
If I give you $1000 right now, what would you do with it? Trust me, in interview sessions, answers to this question are usually very fantastic but in reality, the observable attitudes of people can be very different and unpredictable.
As easy as it may seem, managing money received with little or no effort from you is not that simple. You need to be deliberate about learning ways to stop wasting your free money after receiving them. Here are some things you should learn to do to minimize wastage.
- Have a change of mindset
- Adopting budgeting
- Be accountable/track your spending
Have a Change of Mindset
The first thing you must do to be able to channel your free money offers into productive use is to have a change of mindset. The mindset that everything free does not have value, though seemingly innate in every one of us, must be deliberately discarded.
Just like this mindset, we have many other innate tendencies that may turn out to be undesirable and need to be discarded as well. For example, humans are naturally greedy and discontented with things, never satisfied no matter what you give or do. Are you just going to sit back and allow these pre-set mindsets and traits to determine everything about you?
Adopting Budgeting
Budgeting is one simple financial tool that cannot be over-emphasized. Budgeting refers to how you plan or allocate your financial resources. From the definition of financial management, the planning there represents budgeting, making budgeting an integral component of every successful financial year.
One of the best ways to minimize wasting your free money is to adopt strict budgeting. You should always share your money across all your financial needs and wants even before you begin spending it. This gives you an acute sense of responsibility and control, such that you would more rationally apportion your fund to the different needs/wants in order of importance.
Be Accountable/Track Your Spending
In finance, inventory keeping entails keeping track of income and expense while budgeting involves the allocation of resources, money in this case, to different aspects of the business. Budgeting and inventory keeping requires careful documentation – they need to be written down.
Being accountable for your spending help you know what you need to improve. Very often, we spend without even remembering how the money went. This can be avoided by carefully recording your spending at the end of the day to know where you may need to improve. This subconsciously programs your minds to reduce wasteful spending on subsequent days.
There are three categories of money you should account for as follows:
1. Account for Cash at Hand
If you must be able to manage free money properly, you must be able to manage the money you already have at hand. If you are able to keep track of the money you already have, you can easily add new money received from any source including free gifts to your current finances than when everything was disorganized from the start.
Also, the awareness that you are going well in your financial management spurs you to even be more accountable to new money you receive as gifts or otherwise.
Accounting for your cash at hand means that you should be able to make and implement a budget from your available funds in a way that caters for your basic needs while still sparing you some extra money for investment.
It is important to understand that great accountability is not exactly dependent on the amount of money at your disposal. Even people with very comfortable money incomes can run into financial crises while those with more limited incomes but with good financial accountability fare better and grow their finances over time.
The secret to sustaining wealth is building it from scratch. The process of building wealth requires that you first learn to be accountable to your money at hand, otherwise, you won’t get there in the first place. This is where free money, both as capital and luxury gifts becomes a problem.
2. Account for Expected Money
Have you noticed that you sometimes spend money you have not yet received? You are expecting a payment, or someone promised you some amount of money but you already purchased goods on credit awaiting them. This is dangerous and detrimental to your financial growth for several reasons.
First, you cannot be too sure of what you have not received. Anything can still happen as long as it is coming from humans with questionable reliabilities. Several factors can affect these outcomes, even sometimes beyond the control of those who are supposed to give/pay you the money.
Secondly, if you spend money before you receive it, your financial status will always fall toward zero because you allow your debts to dry up your incomes. The best way to handle this is by avoiding debts as much as possible until your money arrives and then, spend based on your budget.
If there are items you absolutely need to purchase on credit, you must ascertain that they are basic needs you cannot live without, otherwise, they can wait.
3. Account for Unexpected Money
When you are making a short term budget like a shopping list, you always include a row for miscellaneous, don’t you? Miscellaneous stands in for anything you may have missed out or which you may not have been able to envisage – referred to as contingencies.
This normally comes out in one form as a “to-buy” list containing items or services you need to purchase, pending when money comes into your hand. The other side that makes it a proper accounting for unexpected money also aligns with the point of having a change of mindset to managing money receipts. This means you are going to take all money that your receive as potential sources for your financial demands expressed on your “to-buy” or “to-purchase” list.
This way, you are accounting for the money you never see coming as though they were a miscellaneous source of income and not different from what you already have or expect to receive. These come as free money most time but you must learn to avoid wasting them by orienting your mind towards productive spending.
How To Use Free Money To Fill Up Business Vacuum
One of the best ways to identify opportunities when they come is by preparing for them. No wonder they say, opportunities come to the prepared minds. If you are a project-driven entrepreneur, you can effectively fill up the financial vacuum in your business if you keep track of your projects’ financial needs and the money that you receive. By project-driven, I mean, you are someone who formulates business plans to execute sometime in the future.
If you plan your business projects well enough way before you get the money required to execute them, you would always know when to put the money when it finally shows up, as opposed to when you do not have a pre-existing plan on what to do. In other words, you can use funds from free money sources to fill up business vacuums if you plan ahead, failure of which may result in under-utilization and misappropriation of resources.
Final words
You have seen that free money, just like other free items, may be associated with wastage because people consider what they work for significantly more valuable than what they get freely. Even though that is the case, those free money can become a very good source of business capital or seed for business growth if properly managed. Here in this article, I hope you have learnt some new great ways to manage your free money and stop wasting it after you receive it.
