Rules of Financial Literacy

Financial education is the possession of a set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources. It is also called ‘financial literacy,’ and it’s extremely important in order for you to make progress and get ahead in life.

If you were looking for improvement in your personal and financial life, you might be looking for financial freedom and financial independence. It means that you want to reach a point in your life where you no longer have to depend on family, a job, or a company you don’t like… for money.

But there is another concept I would like you to understand. And that’s financial confidence.

Financial confidence is different from financial freedom, and this is because freedom is based on the amount of money you have available, while financial confidence is based on your confidence and acumen to generate money.

Here’s the thing…

When it comes to making money, there are a bunch of rules you have to follow. If you play by the rules you will master your financial life.

We live in an age where information is becoming more and more readily available, every day, for very little cost, and sometimes even free. Today, it’s mostly accessible through a few internet searches. But even with so much information at our fingertips, would it surprise you to know that 90% of the world’s population is still financially ignorant?

Here’s a quick example

Peter just received his monthly paycheck, and after tax he’s left with £1,700. Instead of using his money to invest, save, or anything else that might be useful, he decides to go out eating with his friends twice at the weekend, as well as purchasing another pair of jeans to go with the twenty pairs he already has. There are millions of Peters in this world.

Are you a Peter?

Wealthy people are not financially ignorant people. Unless of course, you count the few who just got lucky, like receiving a large inheritance or a win on the lottery. But before you run out to buy a lottery ticket or ten, statistics show that 70% of big winners end up bankrupt after just a few years. Why is that? Again, it all comes down to how financially educated one is.

If you have no true understanding of how wealth really works, you will still make bad decisions and lose most, if not all your money eventually – and that’s because you don’t know or understand the fundamentals of money management. So, if you want long-term growth you absolutely have to get financially educated and understand the mindset that goes with it. Some habits must go, while new, productive habits move in to take their place.

I think we can all agree that this type of education is not, and will never be, taught in schools. So, if all of this information is so easily accessible to us… why don’t more people take the time to learn about their finances? Well, there are two main reasons for that.

1: Conventional wisdom:  and here’s the stinger. Financial education is not conventionally okay. Most people will instill within you a mindset of scarcity, and if your mindset is off kilter and in agreement because of it – then it’s very unlikely that you will ever attain real wealth in your life. How many times did we hear our parents tell us as children… “Money doesn’t grow on trees?” If you hear words based upon scarcity long enough and often enough, eventually you’ll live by them – and in turn, not take the necessary steps early enough in life in order to begin understanding money as a tool you need to master, rather than a tool you’ll never own.

Another conventional concept that is widely thought but wrong, is the negative connotation towards debt. There’s good debt and there’s bad debt. Good debt could be a mortgage or similar (an investment), bad debt is using credit cards to pay rent and bills while you spend all your hard-earned cash partying (money down the drain). Debt is a powerful but often deadly weapon. Those who know how to use debt the right way will thrive, while those who are scared of it, will miss a lot of opportunities.

2: Comfort zone and self-esteem: Confidence allows you to act outside of your comfort zone, take risks and perform under pressure. If you want to start your own business but don’t have the money to do so – you may have to risk taking a loan from the bank and be thousands of dollars in debt. Without the confidence, you’ll never take action.

It all starts with you and your mindset when it comes to risk-taking and possible failures.

But don’t forget – there are rules.

Don’t invest in what you don’t understand. Investing is important for growth, and this also applies to you. You will not grow personally without the time spent investing in yourself and knowledge first. This rule is not optional, it is a must.

It’s like business – if you are not consistently ahead of the curve and learning all of the time, your industry whatever that may be, will move on without you. Therefore, it’s important to be proactive and stay updated on all the information that matters to you, and to your success.

It makes sense therefore to begin listening to, and taking advice from, those who know how to manage money. After all, you wouldn’t want to learn how to ski from someone who’s never been on a slope before, would you.

Research. Research. Research.

And when you think you’re finished with learning and know enough – learn some more.