Financial Literacy

3 Reasons Why You Need to Become Financially Literate

You Need To Start Somewhere

Do you ever wonder how rich your favorite childhood athletes are now? Let’s take the 90s Chicago Bulls as an example.

Michael Jordan, the leader of the pack, is worth a whopping $2.2 billion dollars. Only $93.7 million came from his career NBA salary, meaning his entire pre-tax salary only makes up 4.2% of his current net worth.

What about his teammate Scottie Pippin? Believe it or not, Scottie earned more in base salary throughout his NBA career at $109 million. However, today he is worth $20 million. Although Scottie is an extremely wealthy man, around $100 million of his career earnings somehow disappeared.

And last but not least, their teammate Dennis Rodman earned a $43 million salary throughout his NBA career. Unfortunately for him, the former North Korean diplomat only has a net worth of $500,000.

You might be wondering why I’m telling you all of this. It’s very simple; If you don’t have a plan for your money, someone else will. And you will lose everything.

Of all the reasons to become financially literate, I’ve narrowed down just 3 of them below:

Without Money You Will Starve

The average 30-year-old American only has $3,240 in savings. Read that again.

This person is only $3,240 away from missing a meal. Despite what the “intermittent fasting” people say, going to bed hungry is not a good feeling.

Of course, many workers have retirement accounts, brokerage accounts, vehicles, and perhaps even a house. But despite the median annual wage being $56,287 for full-time workers, why do we carry such little savings?

The short answer is that simply existing is wildly expensive. Student loans, mortgages, credit card debt, and endless other financial handcuffs milk us for everything we’re worth. Throw a couple of kids on top of that, and it’s a miracle how families can even survive.

The longer answer is a bit more complicated. The American public school system does not adequately prepare its millions of students for the real world. Everyone graduates high school just following what everyone else is doing, which usually includes getting into $100,000 of student loan debt without a plan on how to pay it back.

You need a plan first to survive, then hopefully thrive.

You Are Always One Mistake From Poverty

Jesse Livermore was an early 20th-century American stockbroker who made legendary trades, including $1 million in a single day. Even more impressive, he made $100 million in the Wall Street crash of 1929. That is almost $2 billion in today’s dollars.

And even more surprising, he lost his fortune and filed for bankruptcy just 5 years later. Little is known exactly how he lost it all, but most reports point to an extravagant lifestyle coupled with bad financial bets. It would have been easy for him to live in luxury for the rest of his life and pass millions to his heirs.

But wealth is like a bucket of water; You fill it up slowly, drop by drop, but knock it over, and everything immediately spills out. In other words, becoming rich is tedious and exhausting, requiring immense discipline and foresight. But becoming poor requires only one big mistake.

You probably don’t have $100 million lying around like Jesse. If you’re anything like the average American under 35 years old, you might have a net worth of around $15,000.

If you want to avoid an inevitable catastrophic mistake, you need a plan.

You Will Never Save Your Way To Riches

Most people are born and raised with a scarcity mindset, which is the fear of never having enough. Having an emergency fund, retirement savings, and sticking to a budget are all extremely beneficial, but these are just safety nets.

Unlike most people, the rich have an abundance mindset. In other words, they don’t desperately cling to what little they have, terrified of losing everything. Instead, they take calculated risks and focus on increasing their earnings instead of cutting expenses.

The wealthy know that the only truly scarce resource is time. There will always be plenty of opportunities to make money, but not even the richest man on earth can buy a second of extra time.

So What?

With all of this in mind, you might be thinking, “Okay, if having a ‘plan’ is so important, then what should mine be?”

That’s an excellent question. And unfortunately, the answer is “it depends.”

Everyone has different goals, interests, and abilities. But in order to even start crafting a plan for your future financial wellbeing, you need to become financially literate.

Creating a plan for building wealth without financial literacy is like trying to write a book in a language you don’t even know.

If you want to become financially literate and aren’t sure where to start, follow us at Simple Finances. We will help you avoid common pitfalls on your way to wealth.

Thanks for reading!

If you want to start writing yourself to make some extra money, you only need a membership for $5 a month. You can sign up with this link, which helps me a bit without costing you anything extra.