TL;DR
Money is a necessary part of life.
Poor money management will destroy your life.
Everyone requires at least some money management skills.
While loving money is evil, money has no inherent morality, and one of the most moral actions is giving money to those who need it.
Contrary to public perception, most wealthy people save, invest, and build their careers to get there.
What is money?
Money stores value and influence, so it’s an informal measurement of power.
Money is necessary to do nearly anything with other people.
However, money is only as valuable as other people interpret it to be (i.e., what other people can actually do).
We always manage money toward our desires.
- People save for long-term priorities irrespective of their income when they have a vision for what they want.
Poor money management destroys lives
When we react to feelings or interpret a crisis, we mismanage money:
- We do need to manage a legitimate crisis, but it’s often not the most efficient use of our resources.
- Impulsively buying things is harder to resist when we’re stressed.
- We only focus on the present when we don’t expect the future to come.
Long-term money mismanagement creates disastrous consequences:
- Poor budgeting creates chronic stress and anxiety over any major life event.
- No savings inhibits investing in good ideas or lucrative endeavors.
- Poor money management is one of the most common causes of divorce.
- In the long term, poor money management makes people victims of their circumstances and eventually of others who do manage money.
Proper money management is necessary for both your wellness and the safety of everyone who depends on you.
Everyone needs money management skills
You can’t out-earn reckless spending habits.
Proper money management simplifies life:
Wisely managing money feels like getting a raise.
- Saved money is more than earned money because it isn’t taxed.
Saved money can let you exploit the powers of compound interest:
- Assuming the same rate, investing a lump sum and waiting 40 years will always yield a higher return than investing that same amount across 20 years.
- On the other hand, a credit card borrower making a minimum payment will often pay 5–20 times the original debt by the time it’s paid off.
Loving money is the root of all evil, but money is amoral
Money is the power to get or do things.
Money travels toward what we value:
- More money shows someone’s priorities.
- If we can’t manage a little, we’ll mismanage a lot.
- The amount of money you have measures approximately how much value you’ve added to others’ lives.
- Our availability of money is closely connected to our people skills.
Wealth is a completely relative concept:
- People are only “wealthy” or “poor” based on how they compare themselves.
- Living in complete luxury in many parts of the world is cheaper than living adequately in the United States.
- Often, a life-changing adventure for a long time costs less than a year’s salary (e.g., sailing around the world for 15 months costs ~$18,000).
We naturally find happiness when we save for a goal we want or serve a non-money-related purpose.
People should prioritize giving money
The most moral giving should be on something that doesn’t benefit the person giving:
- Most people have trust issues because they’re afraid of losing money.
- Giving or not giving money is a highly spiritual experience, since it reflects our higher values.
- Owning more wealth than we naturally need is, in many ways, a waste of resources.
Scientifically, we get the most happiness out of our money from helping others.
- Even when we’re doing terribly, we have enough to at least help someone else.
Not needing money is more valuable than wealth itself:
- Wealthy people require constant maintenance of their possessions.
- Money and possessions may give some satisfaction in life, but we get much more out of things like meaningful friendships, personal achievement, inner satisfaction, and the freedom to make choices.
The portrayal of wealthy lifestyles is wrong
Pop culture portrays an inaccurate demographic of millionaires:
- Late 20s to mid-30s without children or adult children are heavily dependent on parental support.
- Makes a very high income from a prestigious trade (e.g., attorney, stockbroker, artist).
- Works 60+ hours a week or less than 30.
- Later-generation affluent, usually as an heir.
- Drives the newest cars and has many expensive hobbies.
Statistically, most millionaires fit a humble profile:
- Late-50s and married with three children, all of them economically self-sufficient.
- Self-employed in a practical business that supplies practical needs.
- Typically not retired and works 45–55 hours a week.
- Skilled at targeting market opportunities.
- Well-educated enough, often with a college degree.
- Allocates time, energy, and money efficiently to effectively build wealth.
- First-generation affluence, with an average net worth acquired slowly over time of $3.7 million.
- Invests an average of 20% of their median household income of $131,000.
- They never play the lottery and avoid debts they can’t quickly pay back.
- Live well below their means:
- Owns a home worth about $350,000.
- Buys older-model automobiles and never leases.
- Attended public schools, but likely sent their children to private school.
- Still clips coupons and looks for discounts.
- Lives a lifestyle that doesn’t show their wealth.
- They bought their home once they’d amassed about four times its value in their net worth.
Anyone with the discipline and determination to change their spending habits can become a millionaire.
The wealth-building “secrets” are a few core concepts
If you fully understand a few concepts, everything else is gradations of detail:
- Keep a healthy distaste for debt and instant gratification.
- Spend less than you earn.
- Curb reckless spending.
- Save, invest, and give away everything you can.
- Research everything you pay for.
- Only spend on what you understand.
- Stay hyper-aware of “want” versus “need”.
- Make your money work passively for you when you’re not working.
- Give much more to others than satisfying yourself.
- Find legal ways to avoid paying taxes.
- Fight against all risks and delegate the risks you do have to take.
Understanding money management is easy, but we need self-discipline to properly do it:
- Determination — focus creates success through changing a lifestyle.
- Long-term-oriented — We consume more and invest less when we don’t say “no” to our present self.
- Optimistic — you must believe you’ll attain your goals and things will work out because you’re defining your future.
- Realistic — “get rich quick” is only possible with tremendous sacrifice, and you probably won’t hit your goals.
- Practical — certain chances to save money can dramatically sabotage opportunities.
- Patient — wealth comes through many small victories over a long period of time.
- Grateful — we spend less when we’re thankful for what we already have.
- Independent — social status is subordinate to financial status.
- Tenacious — spend less time thinking about the future and more time working toward it.
- Open-Minded — You need to see opportunities to take advantage of them.
To live well, we must also practice a few other out-of-the-box habits:
- Pray consistently and expect unexpected things to happen.
- Whenever possible, produce more than you consume.
- Ignore what everyone else is doing, and have pre-planned responses for others.
- Invest in your career, mind, strength, and health.
- Be prepared for high-risk investing.
- Only rich people can live on and invest interest income.
- Even a high income doesn’t guarantee a high net worth.
Avoid the cyclical trap of serving your lifestyle:
- A job creates income.
- That income forms a lifestyle.
- The lifestyle creates financial obligations.
- The obligations make the job necessary.
- Get a higher-paying job and repeat.
Managing money means managing life
Learning about money is one of the most significant investments you can make.
Before talking about goals, however, we must address many misconceptions about financial slavery.