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We study a lot of subjects at school, but sadly, personal finance isn’t one of them.
Yet, a few financial lessons come way handier in real life then Geometry or Latin. One might even think that they purposely avoid helping people gain financial literacy.
But we’re about to change that.
Along with the most important financial lessons, we’re about to teach you the importance of financial literacy and why you should change the being poor mindset.
Poor VS Broke: What’s The Difference?
Are you broke? It’s okay to be broke. Broke means you don’t have much money, and that’s something you can change. Broke can be fixed.
But being poor is different. Poor is a mindset that prevents you from succeeding. It puts you in a perpetual waiting pattern, relying on the pity of others to get by.
Don’t believe us? Look it up in the dictionary! The word “poor” is defined as…
- Oxford Dictionary: “…attributive (of a person) deserving of pity or sympathy”
- Merriam Webster: “exciting pity”
Jack Ma ought to know. Growing up in a communist country and from a family of modest means, his chances of success were very low.
But Jack was a scrappy kid with determination who never saw himself as poor. He spent decades failing at things like college admittance, careers, and new businesses before founding a successful online store in 1999.
By 2014, Jack’s company, Alibaba, went public with one of the largest initial public offerings in history – 26 billion dollars.
Today, Ma is one of the richest people on earth and got on Forbes’ list of Top 20 Billionaires for 2018.
Here’s what Alibaba's founder Jack Ma has to say about the poor:
The worst people to serve are the poor people. Give them free, they think it’s a trap.
Tell them it’s a small investment, they’ll say ‘can’t earn much.’
Tell them to come in big, they’ll say ‘no money.’
Tell them to try new things, they’ll say ‘no experience’.
Tell them it’s a traditional business, they’ll say ‘hard to do’.
Tell them it’s a new business model, they’ll say ‘it’s MLM.’
Tell them to run a shop, they’ll say ‘no freedom.’
Tell them to run a new business, they’ll say ‘no expertise’.
Being poor is a scarce mindset and it can severely limit your growth. Instead, you want to think differently than the majority of people—hence the Minority Mindset—and develop a growth mindset.
Having a growth mindset doesn’t just apply to money—it’s a lifestyle. But for the sake of this article, let’s stick with finances.
The Importance Of Financial Literacy
There’s a growing epidemic in the United States: It’s called financial illiteracy, and it leads to money problems 100% of the time.
Here are a few statistics showing that the majority of Americans are financially illiterate:
- 69% have less than $1,000 in savings accounts and about 50% have zero retirement account savings.
- Financial problems were the cause of 100,000 suicides during the recession (from 2008 – 2010).
- Money problems are the 2nd most common reason for the 876,000 divorces that take place in the United States every year.
The fact is, we’re not taught “new money” in school, and it’s a big reason why the majority of people are broke.
When was the last time your high school finance class taught you how to become a millionaire on just $4 a day (through compound interest investing)?
This is why you have to shift your mindset and start learning about money on your own.
A common misconception about this is that you need to spend a whole bunch of money in order to become financially literate.
The truth is: You can learn just about anything online. All you need to do is use free resources like:
- Social Media
Because all of this education is free and decentralized, you can learn whatever you want, whenever you want to. And that includes financial literacy!
3 Crucial Financial Lessons Everyone Should Know
The days where you can just go to school, get a job, work for 50 years, and retire on a healthy pension are over. There are financial lessons you must learn in order to adapt to current and future economic changes.
That’s why it’s so important to understand these 4 concepts about money:
1. Hard Work Doesn't Equal Money
Hard work isn’t enough. Actually, the hustle mentality everyone is preaching about is toxic. You can work 16 hours a day, 7 days a week, and still end up broke.
Your grandparents might not agree with this because they were raised with a strong work ethic and a belief in the “American Dream.”
Back then, an honest day’s work would put a roof over your head and food on the table. Unfortunately, that’s no longer the case.
In today’s America, 25% of our nation’s homeless are employed. Among them are your teachers, plumbers, maintenance people, and retail clerks.
They sleep where they can and often pay for a gym membership in order to take a shower each day.
This is happening because of a shift in the way our economy works.
In today’s world, the amount of money you earn is directly tied to how much value you bring to the table instead of how many hours you work.
But what does that mean?
It means you contribute unique abilities or talents that improve people’s lives or raise a company’s profits.
The more significantly you contribute to the success of others, the more value you have to offer.
For example, if you’re flipping burgers at a local burger joint, you don’t add much value because you can easily be replaced.
But if there were only 5 burger flippers in the world and you were one of them, you’d be adding serious value because of the limited supply of burger flippers – and you could demand a lot more money.
How much money you make is determined by how valuable your work product is. Aim to provide value that:
- Is unique
- Improves people’s lives
- Solves a problem
The majority of people will learn a skill and get to work earning an hourly or salaried paycheck. But only a small percentage of people—the minority—will constantly strive to add value that exceeds the status quo.
“The price of anything is the amount of life you have to pay for it”
– Henry David Thoreau
Ask yourself how much value you are actually creating. Would your boss replace you with a robot if they could? You must begin thinking about your value today in order to survive tomorrow.
2. Saving Money Is Losing
Saving all your money is a guaranteed path to staying broke.
Growing up, you were probably taught to work hard and put a percentage of your earnings into a savings account. This worked fine for your parents and grandparents, but things have changed.
In today’s world, keeping your money in the bank is a 100% guaranteed way to go broke. The cost of living goes up by about 3% a year. That’s called inflation.
So, if a pack of gum costs you $1.00 on January 1st, it should cost you $1.03 by the end of the year.
When you put your money in a savings account, it grows by .03%. Notice the extra zero before the “3?” It means that at the end of the year your $1.00 has grown to $1.0003.
That’s right – $1.0003. Not the $1.03 needed to keep up with inflation.
At the end of the year, the gum costs $1.03, but your dollar is only worth $1.0003. You can no longer afford the gum because you just lost money by putting it in a bank account
Every year that your money sits in a bank account it loses about 2% of its’ value. So if you have a million dollars in the bank, you lose between $20,000 and $30,000 every year!
That’s why rich people rather invest their money than save them.
3. Banks Aren’t Your Friend
Banks take your money and loan it out to other people at a much higher rate than the .03% they’re paying you.
It's called fractional reserve banking, and it means that the money you put into the bank technically isn't yours anymore.
Want to get a loan for your house? You’ll be paying about 5% interest on your money—if you’re lucky.
And if you take out credit card debt, then you’ll be paying upwards of 20% or 25% interest a year to borrow the money you gave to the bank.
But that’s not all. Through a system called Fractional Lending, banks are able to turn a $1 deposit into over $20. They simply loan out your $1 again and again and again, earning 4-25% every time.
Banks don’t want you to understand how to manage your money. Now, this doesn’t mean you should never save your money.
It's very important to have an emergency fund (we recommend starting with $2,000). However, saving your money for the sake of it is a losing financial plan.
So what should you do instead? Use your money as a magnet to attract more money by investing your money in investment seeds–things that grow and make you more money.
Use These 4 Financial Lessons To Grow Your Wealth
Now you know the 4 most important financial lessons everyone needs to know:
- Money rewards value, not hard work.
- Rich people stay rich by living like they're broke.
- You are guaranteed to lose by saving your money in the bank.
- Don’t trust banks blindly.
Remember that your mindset is where wealth begins. Never think of yourself as poor.
And never let other people tell you that you need material things when you can’t afford them.
Educate yourself and invest like crazy.