The Covid-19 pandemic exposed how financially vulnerable many people are and forced us to rethink everything we once knew about money management. The impact of the coronavirus revealed the harsh truth of how unpredictable the future can be. It’s underscored the importance of having a financial plan.
For those in the 20 and 30-year-old age brackets, this is the opportunity to upgrade your money mindset and financial literacy. Doing so will fortify your position in the future for greater financial freedom.
Improving your financial literacy and awareness of your money is not as difficult as you may think. The root of most money-related stress stems from people spending so much time earning an income they neglect to learn how to manage it effectively. If you can understand, follow, and implement these simple financial planning principles, they will compound over time and provide you a great advantage for growing your future wealth.
1. Lifestyle Inflation
Imagine a scenario where you accept a job offer that doubles your current salary. One might say you might adopt your new lifestyle to meet your higher level of income. Then imagine you one day quit this job. As a result of your lifestyle inflation, you might have little to no savings.
Lifestyle inflation is a cultural pandemic and the number one cause of financial freedom and security being so elusive for so many.
Lack of savings is lack of cushion to help protect you from the shock of an unexpected rise in expenses or a fall in income. Furthermore, without savings, you can’t even think of taking an extended break from your job to try something new — i.e. changing careers or starting a business. And you can’t invest, which is the key to long term wealth accumulation.
It takes no effort to increase your expenses given how pleasurable it is adjusting to a more lavish lifestyle. What takes a lot of effort, and painful at the start, is bringing your expenses down. The moral of the story is no matter how much your income grows, keep a tab on your expenses. Have a lifestyle that’s good enough, but that also allows you to save and can be maintained even if things go south.
2. Money and Boredom
Despite some managing to save some of their income, it often sits idly in their savings accounts yielding little to no growth.
Here are two issues with this approach:
The government continues to print more money, the purchasing power of your dollar decreases. As a result, the money in your checking account decreases in value over time.
Idle funds in your account are easier and more tempting to make superfluous purchases.
Patrick Bet-David, entrepreneur and creator of Valuetainment, says money needs to be moved and will leave you if it gets bored.
“If money stays in a checking account, the money goes to somebody that knows how to use it. Money doesn’t like to stay somewhere where it’s not working. So it goes to someone else that knows what to do with money. So you have to make sure that money’s always moving for you, working for you, and doing something to create more money for you.”
3. The Debt Trap
Unfortunately, credit card culture has made debt a normal aspect of any financial life. When used properly, they’re practically harmless. However, air on the side of caution when it comes to debt.
Accruing debt for depreciating assets, i.e. luxury car or a new PlayStation 5, can put your financial health at risk.
A mantra to be mindful of with debt — it masks the issues in your present and often adds big ones to your future.
4. Create Passive Income Streams
A majority of people exchange their time for money, accounting for 90% or more of their income. it’s in your best interests to avoid falling into this statistic.
There are only 24-hours in a day. Consequently, there’s a limit to how far you can go if you’re trading time for money. As a result, the more time you spend earning, the less time you’ll have left to enjoy your life. Furthermore, if something unexpected occurs and you’re unable to work for an extended period, your income stream comes to a halt.
There is a plethora of opportunities to create healthy passive income streams, with little resistance on your part. One of the most relevant approaches is creating digital products you can monetize, such as:
Write code — create games, tools, or websites
Write — blogs, articles, or books
Design — logos, graphics for t-shirts, mugs, etc.
Create art — paintings, music, or videos
Create online courses — you don’t need to be an expert. Find the right information, contact experts, and put it all in an easy-to-understand language.
5. Be Resourceful
Leverage can be defined as something that can maximize your gains and impact without adding much risk.
Many people allow their lack of knowledge, time, connections and more to become a hurdle in their pursuit of money and success. If you don’t know something, find and ask those who do. If you don’t have time, find people to help you. If you don’t have connections, maybe your friend has. If you don’t have an audience, piggyback on someone else’s audience. Start looking for resources beyond what you own and create win-win situations for yourself. If you do it well, everyone gains value and is in a better position than they were before.
Lastly, be sure to build your personal brand, cultivate an excellent reputation, and know your worth.
Financial planning and growing your wealth are long-term strategies. One of the most gratifying aspects when committing to the long-term game is holding good assets.
Some of history’s wealthiest people attribute their financial success to holding onto land they purchased decades prior. Eventually, the value of their investment skyrocketed along with their net worth. Mark Twain once wrote — “Buy land, they’re not making it anymore.”
Another sound option is buying shares of good companies and patiently holding them for years down the road. Those companies use all their resources to generate money for you and others like you who have invested in them.
Here’s some advice from Warren Buffet.“All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies.”
But please learn before you start investing and keep learning even after. Learn from books, learn from people, learn all you can. And start small.
7. The Best Investment
You’re the center of the system responsible for your money, success, and happiness. If you want this system to perpetually produce positive results for a long time, you must invest abundantly in yourself.
With that in mind, take good care of your health, nurture your relationships, and work to expand your knowledge. These are the things offering the greatest returns and are the most difficult to take away.