GETTING BASIC FINANCIAL INTELLIGENCE

  • Post category:Personal Finance
  • Reading time:6 mins read

Financial intelligence is very important for those who want to acquire financial freedom and wealth. Most people are poor not because they don’t earn, because they don’t manage what they earn prudently.

I know you have come across someone who has worked for 35 years or so, with a stable and constant monthly income but he is broke at retirement.

This is good evidence of the scarcity of financial knowledge in people. It does not matter what you do, you need financial knowledge.

Personal financial knowledge will give you more benefits than being a corporate finance expert by profession. I have come across people who studied finance as I did yet they cannot manage their finances.

Thus, I am not talking about being a finance professional, I am talking about knowing how to manage money. Management of finances entails earning it, using it, and investing it.

Most people are poor not because they don’t earn, because they don’t manage what they earn prudently.

Earn

This is the easiest part of financial intelligence. You have to know how to earn more money. I am not talking about knowing how to only earn money but how to earn more money than the rest.

This is why it is not in order, for you to have someone else determine what you earn. This is what happens when you are employed, your boss determines what your services are worth.

If this is the case, you need to learn how to make money outside your 8-5 job. This is what people call a side hustle, it is a business you do outside formal employment.

To me, what people call a side hustle should be your main hustle while your job should be your side hustle.

No one should call a job his main hustle, if you do, you will just die average. Your business should be your main hustle and your job your side hustle.

Knowing how to scale up that source of income is critical. This is what the most successful people are good at, making more and more money.

Spending

This is also a crucial part of financial intelligence. Similarly, knowing how to spend money is equally important. Since money is never enough for most people, knowing how to prioritize your spending is important.

I only spend money on what I need not what I want. Most people have killed their financial dream just because they cannot control their wants.

They cannot say no to the desire within. They will purchase the latest iPhone just because they want it, even though they do not need it.

Most people buy a personal car because they want them and they end up draining their bank accounts and putting them in massive debts.

Some people will even get a loan to buy a personal car which is a big mistake. This is using even what you don’t have to purchase wants. These spending mistakes accumulate and they entice you into a debt trap.

Debt trap

A debt trap is a position where you cannot exist without debt, you have to get a debt to survive. In a debt trap, you get a debt to pay another debt.

This is called debt refinancing which is dangerous. I am not saying that debt is bad, debt is a good catalyst for financial growth and I love it.

Most people have killed their financial dream just because they cannot control their wants. They cannot say no to the desire within.

Debt becomes dangerous when you get it because you have to. You should get debt voluntarily, to grow not to survive. When you get debt for survival, you are a slave of it.

When you get the debt to grow, you are a master of it. These are two different things.

Debt should only be used to finance a viable existing business. Debt should not be used to purchase luxuries or other liabilities. It should not even be used to start a business.

A new business will take time to make a profit and this is why debt should not be used to start a new business. The creditors (Lenders) will not understand the fact that you are making losses, you will have to pay them back.

Investing

This is the hardest part of financial intelligence. Finally, you have to have investment knowledge, it is not negotiable. What most people know is to save but not to invest.

Savers are losers, investment is the only path to financial abundance. Some people do not even save leave alone investing.

This is because they spend everything they earn or even more than they earn. All the time, your spending should be less than your earnings to get money to save and invest.

Saving does not add anything tangible to your net worth, most of the time it takes away.

If you put money in the bank in the form of savings, you will in most cases find that the money is less when you are withdrawing it.

If you save money under your mattress or in a corner somewhere in your house, no matter how long you save it, it will remain the same.

This is a loss because the prices of commodities are ever-increasing. The only time you should save is when you are waiting to accumulate enough to invest, not otherwise.

Savers are losers, investment is the only path to financial abundance. The only time you should save is when you are waiting to accumulate enough to invest, not otherwise.

Successful people are masters at investing. It does not matter their profession, they have accumulated investment knowledge over time.

Let me tell you a fact of life, a professor of physics or medicine with no investment knowledge will most often than not be less successful financially than a person who never attended school but has investment knowledge.

It does not matter how much knowledge a man gathers in other areas, without financial knowledge, financial freedom will remain a dream. I cannot over-emphasize the need for financial knowledge.

Every person has to learn how to do basic accounting, to differentiate between assets and liabilities, to calculate return on investment (ROI), return on assets (ROA) and calculate profits, this is what basic finance is all about. For entrepreneurs, this is at the core of every business.

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