In this article, I wanted to address 20 principles about money that I wished I knew in my early 20s. I hope it is going to be helpful and give you a new perspective on money.
1. Money management is not taught in school
This may not seem obvious at first but in school one learn how to be a future employee with one or several expertises acquired while studying. Yet after college, very few people know how to pay back their student loan and manage their income/expense ratio efficiently. This knowledge is either acquired by parents and passed on to their children or has to be learned (sometimes the hard way) as you go in life.
2. Your relationship towards money determines your current financial situation
The way you are thinking is key because it affects your actions and outcomes. This is particularly true regarding money. When you assume that money is hard to get, then you are more likely to be often broke or in financial hardship. On the contrary, when you believe that money does exist in abundance and that it is easy to acquire it, then you are suddenly meeting the right opportunities and deals to better your financial situation.
3. Money by itself has no real value
The misconception that many of us have about money often comes from the value we think money has. The problem is that money nowadays is either printed papers or immaterial with credit/debit cards. So money does not have value in itself. In the Middle Age, coins were made out of precious metals and the value of money was therefore attached to its weight in gold or silver. And ancient civilisations used to barter commodities and based their value on their utility and scarcity aspect. The modern form of money is created by the states which decide yearly the amount of US dollars, euros, yen etc that they want to print. And the more US dollar in circulation there is, the less value the dollar has compared to other currencies. This is why money doesn’t have a fixed and real value as in previous times.
4. Saving money is good but having a financial plan is essential
We all heard this principle about money: one should save his money and not spend all its pay check as soon as he or she gets it. I believe that saving is a start and a good idea but what is really essential on the long run is to have a financial plan. To define your financial plan you need to ask yourself : What level of comfort do you want in your life? What kind of lifestyle do you want? What do you need your money for (leisure, investments)? Do you have a retirement plan? Do you plan on having a family? Once you answered those questions, you will know how much money you need on a yearly and monthly basis for your spending and savings but more importantly you will be able to start allocating a proper percentage of your income to each of the areas of your financial plan.
5. The sooner you start working on your financial plan the better
Since the achievement of a financial plan is the result of years of discipline and work towards your financial goals, the sooner you start it the better. Indeed, it will be very risky to start thinking about retirement when you are already in your 60s. This is something that us, young people, don’t always want to put our mind into because we are “still young”. Well, this time will come faster than we think and if we still want to live our best lives as future retirees then it begins as soon as we are financially independent and have a job.
6. Money exists in abundance
As said previously, paper money is being printed every single day. You might not be aware of how much money daily circulate from one person or one organization to another. So yes there is a lot of money around you. The question is why do you feel like you are lacking it or that as soon as you have some it somehow slips through your hands.
7. Good financial habits can be learned
So we discuss about the importance of your thinking which is one part of the equation regarding your relationship towards money. The other interesting topic concerns your financial habits. You first learn money management by imitating your parents and entourage. There are some beliefs and attitudes towards money that have been learned unconsciously. If you think that these beliefs and attitudes are blocking you from having a better relationship with money the good news is that good financial habits can be taught and learned too.
8. An asset puts money in your pocket
This is basic 101 finance management and principle about money. And that is often where people get confused and start struggling financially: an asset is a financial vehicle or a piece of real estate that puts money in your pocket. It means that in terms of cash flow, the revenue you get from your asset exceeds the initial capital you’ve invested and the regular fees that you are paying for it.
9. A house is often a liability
Since an asset is something that increases your cash flow, a house or property is more often than not a liability. In the common belief, being a house owner is an external sign of wealth or that a person made it. The problem is that the down payments for a house tend to increase with the time just like they do for a car. Therefore to maintain its value the owner needs to maintain the house and that costs a lot of money. The older the house gets, the more you have to pay to maintain it.
Besides, the value of a house is not guaranteed since it depends on the ups and downs of the real estate market. So as long as you live in that house and pay for its mortgage and maintenance fees, you are dealing with a liability that takes money out of your pocket each month. That is why a majority of investors starts with renting the house they live in and buys properties only to rent them and increase their capital and assets until they can afford owning a house with all the inconvenience that comes with it.
10. People who struggle financially often have more liabilities than assets
Taking into account the previous point and the difference between an asset and a liability, it is now easy to understand that most people who struggle financially do because they have more liabilities than assets. Or, even struggling people who don’t have a liability such as a car or a house, still have more expenses than income coming in. They therefore live above their means. To reverse this situation, Robert Kiyosaki, personal finance author and investor, advise individuals to work on building their assets and avoid buying liabilities. This will be the equivalent of what we commonly call a side hustle today.
11. There are two types of debts
In general people give a negative connotation to debts. It is seen as a burden that one should get rid of as soon as possible. Nonetheless there are bad debts that are indeed the one that one should avoid such as debts from credit card or any kind of liability, and there are good debts. Good debts are described as the ones who allows you to increase your net lending so that you can buy more assets. It is therefore these kind of debts that an individual who wants to better his financial situation should pursue.
12. Spending money only gives you a temporary and immediate satisfaction
There is a myth about spending money and true happiness. Indeed, when you spend money it is often to satisfy a desire and there are a lot of emotions attached to the buying process of a particular item. The problem is that consuming only gives you a temporary satisfaction and you’ll soon need to buy something else to experience this feeling of contentment again. So especially in your early 20s, should you have control over your expenses.
13. Investing money will procure you security on the long run
On the contrary, the process of investing require a lot of thinking and preparation. It is not something you do for the pleasure but in the hope of having a return on your investment on the long run. This is why it is important to have a financial plan and be able to know when you could expect a return on investment.
14. Money attracts money
This principle explains why rich people tend to get richer. Money has to circulate that is why you should not only save it. The more willing you are to invest your money on meaningful projects, the more likely you are to multiply it. Even if you loose it sometimes it will be marginal compared to your wins. Therefore, you should be to attached to your money and be willing to spend it wisely.
15. Every individual should learn about taxation and accountancy
Knowing the basis of taxation and accountancy is not only for professionals. Of course you can seek for guidance but you have to be the one in control and be able to compare different financial strategies. To do so, you need to have some basic knowledge regarding your level of taxation and its evolution as well as a control over your income/expense ratio. In the end it is still your life and your financial plan should be adjusted to your situation and personality.
16. Making money is easy but retaining it is another story
Finding a job or starting a side hustle isn’t the most difficult part of the job. If you have the feeling that the money you are making doesn’t stay very long in your bank account, then you should start working on a strategy to retain your money so that you don’t have to work harder and harder to sustain your current lifestyle.
17. When you want to invest, having money isn’t your biggest problem
If you look at the money you had in your hands this past year, you can realistically say that you could have done a better use of it. So more often than not money is not the problem. The real issue is that you don’t know yet how to retain and multiply it before you spend it.
18. Building a financial IQ is key
That is why having more money doesn’t solve financial problems. Indeed, there are many stories of lottery winners who lost it all after a couple of months or years only. They were not prepared to handle that kind of amount properly and kept their old beliefs and behaviors towards money.
19. Money rules are often the same
Keep it simple and stick to your plan once you have it. When your plan seems good but you still don’t get the results you want after a while, then you need ask yourself if you also did the necessary changes in your life so that your plan works. The rules of making money are often the same regardless of the field you choose to do it, but individuals are different. Your mindset will be essential for the success of your financial plan.
20. Money is not the real wealth
As said previously, your current financial situation is just a consequence of your beliefs and knowledge regarding finance management. That is why you first need to invest in yourself and in your knowledge. Your strongest and most important asset is you. Since money comes and goes, the only thing you can really count on is your financial skills. And once you get to the point where you trust yourself enough to make the right financial decisions, you will always be able to get back on your feet.
Did you ever wonder how someone who lost everything and went through bankruptcy was yet able to bounce back? It is the lessons they have learned before and after their failure that helped them re-creating wealth and money. They knew that they had the power to take control over their financial situation and improve it thanks to their financial IQ which is something you can only increase.
I believe that the real wealth is not having money but what you intend to do with it. We all need money. The question is why do YOU need it? To get financial security for your family? Or to enjoy life experiences? To pay for your mortgage? For your children’s education? To retire early? etc. Every one will have different reasons, none of them is good or bad. So you need to find yours and only then will you be able to attract the wealth that you want and deserve but above all you will learn how to create and retain it.