I want to start of this week’s post by admitting that money’s been on my mind lately. Actually, scratch that! As a personal finance blogger, money is pretty much on my mind all the time.
I think about money a lot. Not only do I deal with it as an everyday consumer and as an investor in my portfolio, I also deal with money as a student in my Accounting degree. Now that’s a lot of thinking about money in my daily life!
I will be the first to admit that money fascinates me. I love learning about it, understanding how it works and how it can be worked. I believe that every individual should be able to learn about money and have the opportunity to develop their financial literacy, hence part of the reason I started this blog.
My main mission here at Broke Today Rich Tomorrow is to spread some of my own financial knowledge in order to help others who were just as broke as me develop along their own financial journey. Basically, knowledge is power, and the more we learn from each other, the better off we are all likely to be!
I am far from an expert on money and just wealth in general, but along the way I have picked up a few things. Today, I want to share some of these things with you:
Money is 10 times easier to spend than it is to make
You know the feeling – you’ve been waiting for your pay check to come in for what seems like the longest time. You’ve been thinking about all the fancy things you will soon be able to afford and can’t wait for payday. You fridge is looking as empty as my 8am lecture, your internet bill is way overdue and your cat is still waiting on that new kitty litter. Trust me, I’ve been there too, as have many others.
You see, the thing about money is that it is way too easy to spend. It can be gone in the blink of an eye. Before you even realise it, you’ve spend half your pay check and it’s only been three days since you got paid! Whoops. Next thing you know, you’re back at work trying to fix the damage and wondering where all that money has gone.
Realising that money is a lot harder to make than it is to spend puts things into perspective. Since discovering this, my spending habits have changed significantly and for the better. I no longer spend everything that comes my way, but instead focus on making saving a priority. I pay myself first, then spend whatever is left over, not the other way around! You can learn more about why this is important here.
Not all debts are created equal
Not all debts are created equal! The majority of common consumer debts are bad, so you should probably stay away from them if can be. Of those bad debts, there is also a horrendous category, which should definitely be avoided like the plaque!
However, there is a small minority of debts that are actually good! As I know this debt is a very grey area, I’ll keep this point short and sweet. Not all debts are bad and some can even be beneficial for you. However, make sure to do your homework and understand everything before you sign.
An example of good debt from my own life is the Australian HECS loan, which enables me to study my degree without any upfront contributions. In a nutshell, this is a loan that keeps up with inflation and doesn’t have to be repaid until my income reaches a certain threshold, after which repayments are taken out of my pre-tax salary. As an aspiring accountant, this is about as close to a good debt as I think it can get. If you want to learn more about HECS, you can do so here.
Interest can be your best friend or your worst enemy
Interest can help your assets grow exponentially over time. This is especially true when it comes to saving for your retirement or investing for the long term. I talked a little bit more about the power of compound interest and its effects on money over time in my investment strategy, so be sure to check it out here.
In a nutshell, the thing to understand about interest is that it doesn’t go away. If left untouched, it can acquire and grow a small principal in a huge principal over time. Hence, interest is a wonderful thing when it is applied to your assets!
The downside is that is works the same for debts and liabilities. Interest can be a wonderful friend when it is working for you, and a terrible enemy to have working against you. If you have any bad debts, make sure you pay them down in order to get that interest under control, because it do some serious damage to you financially!
Your net worth is not a reflection of your true worth
Money is simply a tool, but it does not define you. Money can buy a nice car, the ability to take risks and your daily latte. Money can buy you freedom. Money can buy you choices.
However, how much you have in the bank doesn’t say much about you as person, expect that maybe you know how to manage your finances. Money does not make you a good or a bad person. Money does not reflect your true worth.
Instead, your true worth is instilled in your values. Your true worth lies in many things depending on which subjective view you take. For me personally, true worth is represented in the way I treat others and in the way others treat me, whether they are strangers or friends. To me, the way you treat others is one of the main reflections of your character, regardless of whether you have $1 or $1 million to your name.
I learned this when I was working as a waitress. I had people from all walks of life treat me like absolute garbage because they had no respect for my work or what they assumed my net worth to be. I remember this one time I was serving a group of lawyers (while I was also at law school, before accounting). I asked them if they liked their jobs and if they had any tips to share from their experience. Their response was mockingly asking me “Why would you need to know? Are can you afford to be a lawyer?”, after which they proceeded to laugh in my face. Very classy!
It doesn’t matter how much you own or how much you make. The way you treat others says a lot more about you than your bank account ever will.
*Side note: I have met a lot of lovely lawyers ever since, so I am sure those guys were probably just bad apples.
Wealth is a matter of perspective
The key to financial independence is to figure out how much is enough. Not for everybody, but how much is enough for you. Do you want to retire by 65 and have a net worth of 3 million dollars? You go for it. Do you want to retire early and spend your life living frugally while backpacking through Europe? That’s your choice! Or would you rather not worry about retirement at all and life your life to the fullest now? Again, whatever floats your boat!
The beautiful thing about financial independence is that it is personal. It is not a one size fits all. It is tailored to fit you, your lifestyle and your priorities. While my partner and I get by just fine living on minimum wage every year, some people may struggle to get by on even double that. On the other hand, others may live lavishly on our income and consider it significant.
Just like many things in life, wealth is a matter of perspective.
The more you learn about money, the more of it you’re likely to have
This ties in with the first point we made. It is important that you learn about money as early as you can. Learn what money is, what it does and how it works. Only then can you learn how to use it for yourself.
Think of every rich person you know – maybe it is Bill Gates, Steve Jobs or even your next door neighbour who drives a Tesla. How do you think they go rich? Probably by knowing how money works!
Education is one the best things money can buy. I’m not necessarily talking about traditional education, like your good old college degree, although that can help too. What I am talking about is financial knowledge, such as how to a budget, how to invest and where and how to maximise your wealth. While learning about money is not guaranteed to make you rich overnight, it is almost certain to make you a more informed decision maker.
It is true what they say that knowledge is power, so I cannot recommend enough starting your financial education as early as can be. Read books about money. Listen to podcasts about money. Watch YouTube video about money. Hey, talk to your rich neighbour about it! The more you learn about money, the more money you are likely to have.
If you’re looking for a place to start, feel free to browse our other posts and check out our Resources page for book recommendations.
This just about sums it up the 6 things you should know about money! I have had a blast writing this post for you guys and I hope you’ve enjoyed it just as much. I know the list is probably never ending, so if you have anything to add please do so in the comments below.
As usual, let’s chat! What is one thing you wish more people knew about money?
Let me know in the comments below!
Being broke is temporary. Being rich a journey.