Financial ignorance isn’t our fault. At least not entirely our fault. The word ignorance does put the burden on the person committing the act. We need to understand to continue to look the other way at our faults can cost us tons financially. When most of us receive money, it begins to burn a hole through our pockets. We began to think of 1000 ways to spend it. We want this. We want that. We need this new thing. We have to re-buy this old thing. Some of us may think to save a bit. The problem is we do not “save” correctly. What is the best way to save? What is the best way to spend? A savings account, at least a traditional one, is not the answer. Buying wants immediately is not the answer either. We need to learn to invest. There are many ways to invest. There are many different strategies in investing. There is no one correct way but, ignorance will lead to a wrong way.
When we think of money, we immediately think of what we can do with that money. What we can do with that money usually involves spending it and having it disappear. Of course, this is in exchange for goods or services. The majority of us see absolutely nothing wrong with this approach. The faulty approach is why the majority of us are financially ignorant. This approach is why the majority of us struggle with a paycheck-to-paycheck lifestyle. We know how to use money. We don’t know all the ways that we can use it. We hear the slogan “money cannot buy happiness.” We still only utilize the money to buy “happiness.” New clothes. New car. New house. Big vacation. These purchases usually come with more debt. More debt because the money we have is rarely, if ever, enough to buy the level of happiness we’re seeking. We don’t seem to understand that. No matter how much we purchase, how big the vacation, how big the house, it never gives us what we’re looking for in life. Yes, it is nice to drive around in something beautiful. It is amazing to come home to a grand house. These things are great. What’s not so great, is the burden of debt that these things bring with them. A mortgage can be around for 30 years. A car note can be around for 4 to 6 years. On top of these things, we’re also paying yearly taxes and insurance. The money we have is not going to cover all of this. We must be doing something wrong. How can we fix this?
The solution is to use money differently. The answer is to understand money can buy something better than happiness. Money can buy time. You may think “how can money buy time?” Time is one thing that cannot be bought, right? Well, I’m here to tell you that time can be purchased. Money utilized correctly can make more money. When money is making money, you no longer need to. Eventually, this money will pay for your needs and wants. Let’s explain the power of investing. A person comes into $5,000. This person can use that as a down payment for a new car. They can use that to purchase a luxury vacation, or this person can utilize that money and invest. The first two options burn the funds, immediately. The down payment for a new car creates more debt than the $5,000 the person received. The luxury vacation would probably be great but, that also burned 100% of the funds. Investing the $5,000 is the way to go. Earlier, I did mention that there are many different ways to invest. If this person chooses to invest, they can buy dividend stocks. These stocks pay you for owning them. They can pay from a range of 1 to 10% per year. Let’s use 5%. Even if this stock gained zero value over an entire year, this person would still make 250 bucks from simply owning the stock. That $250 is an addition to the five thousand invested.
This person lost no money. That $250 can be reinvested. Now this person is making 5% a year on $5,250. Reinvesting every year for ten years will turn the original $5,000 into just under $8,200. This scenario is an example of a stock not gaining any value over ten years, which is rare. With an increase of only 5% per year, that number jumps to just under $12,000. This scenario is also without investing a single dime of your own money over those ten years. No additional investment is another rare occasion. If you were to invest $1,000 each year over those ten years that $12,000 jumps to around $31,500. Yes, That is just 83 a month. You’ll passively watch your money more than double. This scenario is on the extreme low end. Compound interest and reinvesting your dividends, on top of adding in what you would have put in a savings account or worse, can make this number hit six figures within those ten years. That’s just dividend stocks. You have growth stocks that you can buy today and see your investment 50X your purchase price within ten years. You can invest in crypto and see those 50X returns occur within one year. Of course, there is a risk but, it doesn’t come with debt. That car will. That house will. That vacation won’t but, when you think of the opportunity cost of not being able to do the above, it’s very expensive. You can also invest in yourself. Start your own company. You can turn your hobby into a profession. In the beginning, your own company is nowhere near as passive as investing in the markets, but the happiness you gain may be the happiness you’ve been searching for all along.
In closing, your goal should be to become as financially literate as you can. The freedom you will give yourself will be astronomical. Knowing how such a small sum can alleviate the daily trials and tribulations you have is awesome. It’s just an unbelievable eureka moment that is there to stay. Realizing you don’t have to give 40 and 50 hours of your life every week is bittersweet. The sweetness outweighs the bitterness. You need to think “Hey, I could have never had this moment. I could have continued to go through life and burn money as it got into my hands. That life is no longer in my way of life. That method of spending is no longer my goal. Money is a tool that I know how to use. I am now financially literate with plans on improving. I may work for money now but, my money will work for me soon.”
Food for thought… You do the dishes!
