We often try to be prepared for many things. It is in the nature of a protector. It’s why we carry a concealed firearm. It’s why we EDC medical, go to shooting classes, why we watch instructors online. We lock our doors at night to prepare for robbers. Most of us have a spare tire and jack to prepare for a flat. These are all great emergency events to be aware of and to make preparations for. Here is the problem. Most of us forget to prepare for the most common problems we will encounter, financial emergencies.
Why is it that most people when they think of emergencies don’t think of money? It seems to be the most common emergency people have, they need money. Money is the heartbeat of our world. Almost anything you want or need can be acquired with money. Want a new car? Money. Need a roof on your house, you need money for that. Have a dying father you want to spend more time with? Money allows you to leave your work for a month to be with him. It also might be the saving grace to keep him alive. So the question I ask myself is; why is it we have so much trouble getting financially prepared? It is after all how we prepare for everything else.
I want to help you understand money. My goal here isn’t to tell you to save 1k, get out of debt, max out your Roth, and then buy a house. I want you to figure out that stuff on your own. I want to change how you think of money. I want to interrupt your daily life and make you think about that next purchase. Is this how I should be spending my money, AKA ‘stored work’?
Money is the way we store work. This phrase means exactly as it reads. Money is literally a monetary translation to the amount of work put into our society. When you do something that is valuable to someone in our society they exchange that work for money. You can then use this money in exchange for someone else’s work, who will use that money to purchase someone else’s work, and so on. This transaction takes place every day, millions of times a minute. Some people are paid for their time, others are paid for goods they produce, others are paid for their knowledge or skills. Regardless of the way you contribute to society, you are compensated for this work with money. How you manage this money determines your future.
The roadmap of being responsible with money is very easy. Spend less money than you make. Store some amount of money for unexpected expenses. Take any excess money and put it to work making you more money. If you can do these 3 things your money will grow. Easy right? Conceptually yes. In practice not so much.
There are 4 reasons why people fail at managing their money.
1) Lack of knowledge
2) Lifestyle inflation
4) Undisciplined Thoughts
Most people like to think they don’t make enough money, or that the cost of living is too much. Though these things can help and hurt. This, for the majority of Americans, is not the case. More people making over 100k a year still live paycheck to paycheck the same way someone who makes $15 an hour does. Why is it that two people, one who makes over 3 times what the other makes, can still be equally as broke? Let’s take a closer look at these four concepts.
First, Lack of knowledge, for many, is the foundation of money problems. It is impossible to build a strong castle on a poor foundation. In the same way it is impossible to build a strong financial plan when the foundation of your bank account is built to hold a shack. Most Americans don’t understand the concepts I’m about to explain to you. They know them, but they don’t understand them. The issue now for Americans is that we live in a world with too much information. 100s of get rich schemes. 20 ways to budget, 10 stocks that are going to double in the next week, and people who fake being rich to teach you how to make money. If you are looking to build your knowledge on money be aware of these clickbait items as they will only bring you more issues.
Where should you go to find knowledge on money if you can’t trust what the internet says? The truth is the internet is the only resource you need, everything you want to learn can be found on there. The thing that you can’t get from the internet is practice. The same way you dry fire a pistol, you need to dry fire your finances. Also, In the same way you are skeptical about trolls on instagram telling you tactics you need to use those same “spidey senses” looking at information on making money.
Secondly, Lifestyle inflation is the reason someone making $100k can be just as broke as someone making $30k. Even though they don’t appear to be the same amount of broke because one has a Range Rover and the other drives a rusted out Honda. Avoid inflating your lifestyle every chance you get. I think as a goal, you should strive to live on 50% of your income and store the rest for later use. However I realize most of us aren’t in that position, yet. So for example let’s just say 90% you need to live on and 10% is yours to keep. Let’s talk about how to increase that to more than 10%.
For example, you make $30k and you are able to pay all your bills on this $30k. You get a $1k raise every year. In 3 years you have reached your goal of keeping 10% of your income to put to work. If you were to invest this money, effectively $3k can earn you $240 extra dollars a year based on a general 8% return. That’s almost a 1% raise. Now you get to keep that money to make even more money next year, plus the extra $1k you are going to put in. I know this concept of saving and investing is simplified, but it works. This is compounding, we will touch on this later.
The third concept is Greed. Greed in this context is the thought that you are owed more than you currently have. I want to have night vision. I want to get that Porsche 911. I need those awesome pants. I want to go to the range and shoot with my buds. Interestingly enough, having everything above is very doable, and really great. Greed is buying those things when you can’t afford them. Buying them because you deserve them. Not because you want them and you can afford them. JayZ said it best. ‘If you can’t buy it twice you can’t afford it.’ The best way I have found to avoid greed is to control your thoughts. Stay focused on your goal of getting rich.
Lastly, Undisciplined thoughts are the gateway drug to being poor. We need to set goals and continually keep focused on our goals. I love the quote “What you think about comes about and what you focus on grows” – Gerald Peters. This is the basics of having control of your thoughts, your mind is a powerful mechanical device grinding to its goals almost unconsciously. Your conscious thought is like a laser device, you can control the laser device. Constantly thinking about your goal directs your unconscious thought toward that very thing.
Let me give you examples of this very concept. If you want to become an expert shooter it requires tons of focus, you need to be immersed in the world, and you need to always be thinking about shooting. Someone with this goal will follow Master class shooters on Instagram, they watch videos on YouTube about tactics tips and tricks. They might even go as far as to buy a book. They spend hours practicing. All of this is because they truly wanna be a good shooter. What I’m saying here is similar to the example of the expert shooter, if you want to be financially free, set your goals and “laser focus” on it.
This roadmap above is not the end all, be all to money, it’s just the start. It’s the basic concepts you need to start thinking about. Over time I will give you my “EDC’s” to put practice into each of the topics above. Starting with the knowledge. Next blog we’re going to talk about debt. Types of debt, how to use it, how to get out of it and why this is important.
This is what is no longer taught in school. Unfortunately, it is not taught in many homes either.
It really is unfortunate. It doesn’t align with state testing so it doesn’t get taught. We are setting up our kids to pass tests, not learn life skills.
Yes sir. It is unfortunate.