Over the past year, I have engaged with hundreds of people about their finances. From people in the high-income bracket looking to build high-value portfolios to unemployed people drenched in debt and the bulb of hope dimming in their financial lives.
At a young age, I have come to appreciate the importance of financial literacy and dread the consequences of a lack of it.
While most people suffer from an income problem and not a financial literacy problem, it pains to see one make decisions that later lead to regrets and losses.
You can’t blame yourself for being in the low-income bracket, but you will be one hundred per cent accountable for all the decisions you make with your money. And these will significantly impact how you live. In the grand scheme of things, managing your money will directly affect how you live.
Get The Most Out Of Your Money
In most of my interactions, I have realized that most people fall into two camps. Most people are spendthrifts while a small portion are over-savers.
One problem affecting most people is spending too much and saving too little. These are people who spend 99% of their incomes. And for most people, you can’t blame them. They have low incomes and hardly meet their basic needs. Hence, saving to them is a luxury that their income cannot afford. As Nick Maggiulli wrote,
“The secret is the thing in personal finance that no one wants to talk about; it’s easy to save money when you have a high income.
In all seriousness, you can talk about cutting your expenses all you want, but it’s income that builds wealth.”
Many people will blindly imagine that regardless of your income, you should save a certain percentage of it, let’s say 10%. They do not realize that some people live modest lives and barely meet their essential needs, let alone get money to save.
The other camp with very few people is the camp of over savers. You are probably not in this camp. These are people who will astonish you with very high saving rates. They don’t spend money on anything other than the essentials, and they take the most affordable options regarding housing, food, travel and everything else that involves money.
While these people get ahead easily financially, they also unknowingly miss out on other spheres of life. Like getting to spend money on experiences that would enrich their lives with memories in their old age. Like Bill Perkins writes,
“If you spend hours and hours of your life acquiring money and then die without spending all of that money, then you’ve needlessly wasted too many precious hours of your life.
There is just no way to get those hours back.”
The Cost Of Financial literacy
If there is one place where people quickly lose their hard-earned cash, then it’s in investment scams. If you don’t believe me, here is the story of Bitstream Circle, a Ponzi scheme that was designed by Chinese and Kenyan fraudsters, and in just 97 days, they were able to scam people $10,048,350(Ksh 1.18B)
Yes, being scammed online has become easier, which has been one of the dark sides of the internet age. But scammers have been able to exploit people’s financial illiteracy. If you stick to the fundamentals of investing, do not invest in things you do not understand, and do not invest with money that you cannot afford to lose, you will hardly fall victim to any investment scams. Like the founder of the Ponzi scheme wrote to Kenyans on Telegram after defrauding them,
“you are a bunch of brainless races, see you on our next plan. I still drive my Ferrari, and some of you can’t afford to eat.”
Let Your Money Work For You
The main reason why people invest is to grow or multiply their money. This is the next level of personal finance management, where money is now a tool you can deploy to help you make more money.
This is why investors risk their money in the stock market, crypto projects, real estate, and other businesses. This is in a bid to multiply their money.
While it seems straightforward that most people would wrap their heads around this, they still have vast amounts of money in their bank’s savings or fixed deposit accounts, earning tiny returns that are way below the inflation rates.
They end up compounding their money at meagre rates and even losing their purchasing power to inflation.
The Bottom Line
In the same way, you cannot traverse alien lands without a map or a tour guide; it’s the same way you cannot get the most out of your money without knowing how to manage, keep, and multiply your money. The most challenging thing is earning your money. That’s why scammers are trying hard to trick you into giving them your money.
“as the law of gravity, the laws of wealth creation are universal and money is plentiful to those that understand the laws that govern its acquisition.”George S. Clason