Financial Freedom Road: Change Your Money Mindset, Win Financial Freedom!

The skill that completely changed my wealth situation was to recognize my incorrect attitude towards money, break out of the wrong mindset, and then change my behavior, accelerating every decision about money to make me richer.

This skill enabled me to earn my first million in a short time in that year of my life. Let’s share 9 bad money habits that ordinary people are least likely to notice, and the techniques and methods to break these habits, helping you identify and improve them, and earn your first million faster.

The 9th bad habit to share is paying the deposit bill last. I first heard about this concept in the bestselling book “Rich Dad Poor Dad.” This concept is one of the most important principles for achieving personal financial freedom. After people receive their salary or earn money, there are two ways to spend it.

The first type is the habit of poor people, which is to pay others first, such as rent, water, telephone, subscription fees, social and entertainment expenses. If there is any money left, then save it. They spend money first to make other businesses and individuals richer, putting off saving money to make themselves wealthier until later. I believe this is a spending habit of many people. I used to be the same way a long time ago, with no money left every month, and sometimes I had to borrow a small amount of money from relatives and friends just to get by.

The second type is the habit of rich people. Once they receive income, they immediately save at least 10% of it, which can be used for investment or as an emergency fund. They actually treat saving 10% of their income as a priority bill that must be paid first, and then they pay other expenses and consumption. They prioritize saving money. When I started to change my habits and paid off my savings bill first, I quickly had some savings and could start learning about investing and how to use money. Changing this habit is very important because having savings makes it possible to move on to investments. Otherwise, you will be trapped in a balance between earning money and spending, and your wallet will never come out of the zero balance state every month.

The eighth bad habit is getting used to loans. Nowadays, even for small expenses, people often use loans, such as buying gifts, furniture, appliances, clothes, and phones. They buy first and pay later. Using credit cards and small consumer loans has become commonplace. Credit card companies and small consumer loan companies are most eager to see your financial situation getting worse, because as long as you cannot repay the full amount on time, they can charge very high interest rates.

According to Forbes, as of July 31st last year, the average credit card interest rate had reached nearly 25%. In comparison, with the process of interest rate hikes in major countries around the world, the pressure-inducing mortgage interest rates are only 6%-7%. I have also experienced having credit card debt. At that time, I had no choice but to open several more credit cards and transfer the balance from one credit card to another. Then, for the next 6–12 months, during which I earned money, I was not happy at all because I had to pay off the credit card first, making it seem like I was working for the credit card company.

After realizing this bad habit, I changed my mindset. I only use a credit card to make purchases when I have enough cash on hand, because I can repay it without any pressure during the interest-free period of the credit card, which is like a free 30–45 days. By using the credit card company’s loan, I can also earn air miles and points, which can be redeemed for tickets and gifts. Taking advantage of credit card companies begins with changing one’s consumption mindset.

The seventh point is not having an emergency fund. If you have a deposit in the bank that can support your living expenses for 6 months, it will free up mental energy in your work and life, relieve a large part of your mental burden, relax, and then start researching and investing in stocks, funds, cryptocurrencies, and even real estate and business. It’s like getting a key to open the wealth appreciation task line.

Photo by Mathieu Stern on Unsplash

So how do you save up an emergency fund? As we just shared, you must first pay your own savings bill. Of course, it depends on how high your income is and what proportion of your income is saved. You also need to get rid of the bad habit of credit card loans, which I deeply understand. I used to have the burden on my mind every month because I had to repay the loan every month, and I had no money left at the end of each month. All my energy was focused on doing my job well, fearing that if I made a mistake and had my salary deducted, I would have negative income for the month.

After accumulating an emergency fund, first of all, I felt relaxed, and after relaxing, my work efficiency improved, mistakes decreased, and I started to study investments and entrepreneurship in my spare time. It was the combination of these two aspects that increased the speed at which I made money. The sixth point is not understanding one’s own income and expenses well, and never reconciling them. There is a term called “lifestyle inflation,” which is the biggest invisible killer of ordinary people’s wealth because you are not aware of it. The more you earn, the more you spend, forming a vicious circle. For example, with a promotion or a raise, the first reaction is, “Hey, I have money now. I can buy those things I couldn’t afford before, like bags, cars, and houses.” The higher the income, the more expensive the bags, the more luxurious the cars, and the bigger the houses you buy. This phenomenon is so common; it’s practically a formula for staying poor.

As income increases, so does spending, and the difference between the two is that wealth does not increase. This highlights the importance of tracking your income and expenses. You must know where your income comes from, where your expenses go, and reconcile your bills at least every three months. In my experience, once you start reconciling, understanding your income and expenses, you will understand your financial situation, assets, and liabilities. Most importantly, you will have a grasp of your current financial situation and how far you are from your future goals.

After understanding the gap, I completely lost the desire to increase expenses after increasing income. I still maintain this habit. Although I earn a lot of money every year, I have no pressure to buy a bunch of cars. I don’t even own a car; I take public transportation. I dress cleanly and neatly from head to toe, but my expenses are less than 1,000 yuan. This means that while my income has increased, my lifestyle has not changed, yet my wealth continues to grow. If you want to improve your financial situation, you need to save more money while you have income, or earn more money. The best way is to do both at the same time. You cannot increase your wealth by earning more and spending more. At the same time, there is no way to increase wealth just by saving money, because under certain income conditions, the amount of money you can save is always limited, and you cannot go far. So you must balance both. Think about how you can increase your savings rate while also earning more money.

Photo by Ibrahim Rifath on Unsplash

The percentage of savings may have a limit, but there is no limit to how much you can earn. For example, investing in stocks, real estate, requesting a raise, or starting your own side business, even starting a business in your spare time, are all methods that can quickly multiply your income. Relying solely on savings cannot make you richer. You must increase your income and reduce expenses to become rich quickly. The fourth point is the shopping frenzy that almost everyone has. Shopping can be said to be a hobby for many people. Some people like to buy handbags, some like to play with watches, and some like to modify cars or play with photography, buying equipment. Each of these hobbies burns money. In this regard, today’s media platforms play a role in boosting. As long as you use news or media platforms, you will definitely see hard advertising, soft advertising, seed planting, and content consumption in the economy are becoming more and more important. 70% of the US GDP comes from consumption, so businesses and governments will try their best to stimulate consumption. You will hear marketing slogans like “Men deserve to have it” or “Women should be kinder to themselves”. Many people have no resistance to being stimulated to consume or to being instilled with the idea of consuming. As a result, although their income has increased, a greater proportion is used for consumption, to treat themselves better, so wealth can only get farther and farther away from them.

I like photography. As the saying goes, “Photography makes you poor for three generations, and a single-lens reflex camera ruins your life.” Photography is an expensive hobby because every time new equipment comes out, you want to buy it to play with. The money you earn goes to the major photography equipment companies, and you still don’t save any money every month. Later, I started saving money and reducing consumption. I reconciled my accounts every month, set goals for myself, and started a business. I established my own company and completely had no time to think about photography because playing photography couldn’t help me achieve financial freedom. However, after establishing the company, I suddenly opened up another way to increase wealth while playing photography, which is using tax strategies. Any equipment used for filming and producing films can be fully offset against the company’s operating income for the current year. I’m in Australia, so I can reduce the consumption tax by 10% and reduce the business tax by another 25%. So, I buy photography equipment cheaper than ordinary photography enthusiasts by 35%. If I sell it in the second-hand market, it might be 20% cheaper than the market price. After all the calculations, I’m still making money, so it turns out that the more photography equipment I buy, the more money I make. I can play with the latest equipment while also taking care of my business and hobbies. Of course, this is not applicable to everyone under every country’s tax framework, but this leads to a very important misconception about finances that I want to discuss next.

But if you consider paying taxes as your honorable social obligation and are willing to pay more taxes without considering legal tax avoidance strategies, then you should understand tax relief methods. The money you save through legal tax avoidance can be used to donate or start charitable projects, putting your money where you believe it is most needed for social responsibility. It’s better to control your money than to let the government decide where your tax money should be spent, right?

So, if you want to go faster and further on the road to wealth, you must, based on earning more money and reducing consumption, leave more wealth for yourself through tax strategies.

The next bad habit is waiting too long to start investing. Once you have some savings and buffer funds, you should start considering investing to make your money work for you. Because there is always an income ceiling when you exchange your time for wages. Even if you don’t run a business or employ others to work for you, letting your money work for you can still earn you a lot. There are always reasons that may deter you from investing, such as not having time, money, or energy. The longer you delay investing, the more effort you will need to put in to achieve the returns that could have been gained through investing.

If I had started investing with a wealth mindset at the age of 20 and continued, I wouldn’t have had to painfully change my bad money habits and work hard to keep up with others’ wealth. Of course, once you start investing, your focus will also change. You will shift from wasting time on your phone and watching entertainment programs to actively following financial news and reading wealth books.

My personal advice is to diversify investments from a risk control perspective, with the majority in stable, long-term appreciating assets such as real estate index funds. After setting aside enough emergency funds, allocate a small portion to higher-risk assets such as individual stocks or cryptocurrencies for the potential of significant short-term gains, while ensuring stability and steady appreciation.

Photo by Samuele Errico Piccarini on Unsplash

The next point is the most important and often overlooked: keeping all your money in banks. Many people believe that storing money in banks is the safest option, but is it really? Bank failures and credit collapses occur worldwide. There have been regional bank bankruptcies in the United States, and in mainland China, there are often incidents where people cannot withdraw their deposits. This shows that keeping money in banks is not always secure. Additionally, there is the risk of currency overissuance and inflation in the economy. While money in banks may earn interest, its value or purchasing power is constantly decreasing.

Currency is just a representation of wealth and value. What we need to possess is value, not just currency. Therefore, we must convert currency into assets that appreciate in value, such as stocks, real estate, and physical gold, to maintain and increase our wealth.

Each change in money habits has a process, but once changed, the path to wealth is unobstructed and clear. My first million was not obtained through investment, but after changing my mindset about wealth, I relaxed and started my own business. I earned it through my real estate business. Of course, after earning money, I used tax strategies to retain more wealth, providing more capital for investment. All of this started with changing these 9 bad money habits.

The last and very important point is to equip yourself and your family with reasonable insurance, which can be used to mitigate risks. This is crucial, and specific purchase plans should be based on local conditions. I have found that in many places, the awareness of insurance is not strong, or people have never thought about buying insurance, especially in less economically prosperous areas. In such cases, a reasonable insurance plan is needed as a strong backing to mitigate risks without returning to square one or worse. Of course, I hope that everyone will not need to use it and will be safe, healthy, and happy.

If you find my sharing helpful, feel free to give a round of applause, or leave your unique insights in the comments section. Let’s explore together towards a better life!👏

Money Management
Money Mindset
Recommended from ReadMedium