Do you understand your own money cycle?

The economic cycle functions because when one person earns money they are able to spend it for goods and services and this in turn becomes another persons income they too then get to spend for goods and services and the cycle continues.

When this is working well everyone feels confident and the desire to spend increases but because you can only spend what you earn, in order to spend more we borrow money and we do so feeling confident we can manage the extra payments in the future.

However you can only spend 100% of what you earn so once you have committed to future payments, what you used to spend that money on is no longer possible but because we still feel confident everything is going well we attempt to continue the same lifestyle we had before we took on the credit.

And so before long, our spending starts to reduce and because our spending is another persons income, their income reduces and then everyone starts to lose the confidence they previously had and the cycle turns.

Two important factors you must understand about money

1. The economic money cycle of the country as whole

2. Your own money cycle and how to control it

The video below explains the first one really well and while it is 30 minutes long, watching this is one of the best investments you can make (30 minutes of your time).

You can then take this knowledge and look at how this is influencing your financial situation and more importantly start to understand your own money cycle.

Check out my book

'How I Fixed My Broken Budget'

7 Key principles for successful budgeting