30/09/2023
Now on Amazon-The Financial Guidelines to Prosperity, financial security and wellness.
CHAPTER ONE
THE DIFFERENT MINDSET
Managing one’s finances is not solely a manner of adopting the right mindset and habits; it is also about avoiding certain behaviors and actions that can result in that least enviable of outcomes: financial ruin. In this opening section, we will explore some of the common mistakes that people make when it comes to managing their finances, and—most crucially—ascertain methods of how to avoid them.
One of the most common mistakes people make is overspending. This may sound obvious, but we ought to investigate this issue more deeply. Put simply, overspending occurs when individuals spend more money than they earn. Over time, this discrepancy can lead to debt and financial instability. For any number of ‘over spenders’ you encounter, you may discover an equal number of reasons underlying the reckless financial behavior of these individuals. Be it a lack of budgeting, impulsive spending, or a pressure to maintain pace with the lucrative lifestyles of our peers, causes of overspending vary from person to person. On paper, however, combatting this issue is rather straightforward; We must learn to create a budget, track our expenses, and prioritize our spending to ensure that any expenses are within our means.
Another common mistake is failing to save. Again, this issue can arise from a plethora of reasons, most commonly a lack of discipline or a limited understanding regarding the importance of saving. The latter is particularly concerning, given that saving is essential for building an emergency fund, investing in retirement, or achieving financial goals. To avoid this mistake, then, individuals should prioritize saving-oriented behaviors and adopt a habit of setting aside a certain percentage of their income for savings each month. In other words, we must learn to pay ourselves before paying others.
Investing without proper knowledge and research is another common mistake. Of course, investing can be an effective way to build wealth. In the absence of adequate research and knowledge, however, it can also be decidedly risky. As such, is important that any budding investor takes the time to learn about different investment options, such as stocks, bonds, and mutual funds, and understand the risks associated with each investment option before deciding. It is also essential to diversify investments to minimize risks.
Failing to pay off debt is another mistake that can create financial problems. Debt can accumulate quickly, and high-interest rates can make it challenging to pay off. Most worryingly, the longer debt remains unpaid, the steeper the hill becomes. Thus, individuals should prioritize paying off high-interest debt first and adopt a strategy for paying off the remaining debt. Consolidating debt and negotiating interest rates with creditors can also help to reduce the burden of debt.
Finally, failing to plan can lead to financial instability. Finance is not something that we will escape as our lives progress. On the contrary, it is something that becomes increasingly important as we age. Hence, it is essential to plan for retirement, unexpected expenses, and other life events that may impact our financial security. Individuals should develop a long-term financial plan that includes saving, investing, and budgeting for future expenses.
THE BROKE MINDSET
The Broke mindset is embodied by individuals who habitually allocate their entire paycheck towards acquiring assets that depreciate over time. To put it simply, individuals with a Broke mindset invest their hard-earned money in items that do not increase in value as time goes on. Examples of such assets include clothes, shoes, automobiles, and various forms of technology. While these possessions may provide temporary satisfaction and serve immediate needs, they do not—except in exceedingly rare cases—possess the ability to generate long-term financial growth. On the other hand, appreciating assets are those that have the potential to increase in value over time, such as real property, gold and silver, stocks, bonds, and various forms of currency.
To provide a tangible example, I recall a friend from my high school days who was involved in an illicit trade. Despite his substantial income, he fell victim to the Broke mindset. Each week, he would lavishly spend the money he made through this ‘work’ on an abundance of expensive sneakers, and once revealed that he allocated over $300 toward renewing his stash of undergarments. Astonishingly, he never wore his socks or undergarments more than once, instead opting to discard them after a single use. This excessive and unsustainable behavior perfectly encapsulates the misguided approach of the Broke mindset, where money is spent on depreciating assets without considering their long-term financial implications. Of course, this situation did not end well for the individual in question.
By exploring the pitfalls and consequences associated with the Broke mindset, this book aims to provide invaluable insights into the importance of making wise financial decisions. Through understanding the distinction between assets that appreciate and those that depreciate, readers will be empowered to cultivate a more prosperous and financially sustainable future.
