The Only Two Finance Lessons You Need to Know
Everything else stems from just these two simple yet profound lessons
The doors to the wonderful world of money and finance opened up to me when I read the book Rich Dad Poor Dad by Robert Kiyosaki. Fascinated, I went on to explore this new world.
I devoured books, articles, videos, and podcasts on monetary theory, financial trading, personal finance, investing, economics, etc. I dived into the stock market and gradually built it up into a profitable side hustle. I also tried my hand at various money-making hustles — succeeded in a few, failed in most.
I learned quite a lot and realized that the world of finance that had initially seemed extremely complex to me was actually not, in fact far from it.
Granted, the world of finance is huge and you can never explore enough of it but there are only 2 fundamental and surprisingly simple lessons that you need to know.
Lesson #1 — Don’t work for money
When I first came across this, I was baffled and dismissed it as just one of those wishful empty quotes that feel and sound good only on paper. It took me quite a while to truly understand its significance.
What should you work for then?
That’s a natural question to ask, isn’t it? All our lives we have been taught that we work to make money, to create a living, to earn our bread and butter, to have a roof over our heads, right?
So should you work for enjoyment or satisfaction? But neither of those pay the bills and we all need to pay bills.
The right answer is that you should work for assets. Everything most of us know about assets is wrong. We consider things like a house or a car as assets while in reality, they are liabilities.
“The biggest mistake most of us make and the wealthy don’t is accumulating liabilities and thinking they are assets.”
An asset is something that can create or produce money. Investments, rental property, skills, etc. can produce money whereas a liability such as a house or a car depreciates in value over time and makes you lose money.
The biggest mistake most of us make and the wealthy don’t is accumulating liabilities and thinking they are assets.
Your paycheck will never be enough
Most of us live “paycheck to paycheck”, limiting our expenses, staying unsatisfied, and constantly wishing for a higher paycheck.
But even if you get a higher paycheck, your expenses will go up and before you realize it, it will become the new normal and you will start wishing for a higher one again.
When you work for money, you will be a slave of your paycheck and never attain financial independence. Does this mean you should stop caring about the paycheck altogether? Absolutely not. It just shouldn’t be the primary focus. As Robert Kiyosaki rightly says,
“Work to learn. Don’t work for money. Work to develop skills, knowledge, and meaningful connections with people. The money will follow.”
Lesson #2 — Make money work for you
As I said earlier, when you work for money, you become a slave to the paycheck and will never attain financial independence. So you switch sides and take over control — Make money work for you instead.
Not making your money work is as good as spending it
We are taught to “save” money to become financially independent. The idea is that you keep saving until you have enough to retire one day but this is flawed for one main reason — Inflation which slowly chips away at your money.
“ So saving money and spending it aren’t that different. You are burning money in both cases albeit a bit slower in the first case.”
Suppose you saved $100 every month consistently for say some 10 odd years. You will end up with $12,000. So you didn’t lose any money, right?
Wrong. You did. The purchasing power or the value of money goes down with time. A dollar today is worth much more than the same dollar ten years down the line.
So saving money and spending it aren’t that different. You are burning money in both cases albeit a bit slower in the first case.
Money is the ideal worker
Money is the ideal worker, able to work tirelessly 24 hours a day, 7 days a week without any salary. The adage, “The rich only get richer” holds true for the very reason that money can create more money —the more money you have, the more you can make.
This is exactly what passive income is — income that you earn from your money working, not you. Assets produce passive income. You will never be able to achieve financial independence with an active income as Warren Buffet says,
“If you can’t find a way to make money while you sleep, you will work until you die.”
Pay yourself first
The vicious cycle most of us engage in is — receive the paycheck, spend throughout the month, save if anything’s left, and repeat.
We end up paying everyone else before paying ourselves. We spend → save instead of saving → spending as Warren Buffet says,
“Do not save what is left after spending. Spend what is left after saving”
The funny thing about spending money is that $1000 and $800 dollars wouldn’t seem all that different, so paying yourself first won’t change much of anything.
Invest what you save and let your precious dollars slave away
Stocks, commodities, fixed deposits, recurring deposits, SIPs, mutual funds, rental property, land, etc. — the avenues for investing are really limitless.
Once you invest, you can sit back and watch as your money grows. Reinvest what you earn from assets back into them.
Watch as your trusted employees, your precious dollars slave away day and night to create more of them.
“Reinvest what you earn from assets back into them. Watch as your trusted employees, your precious dollars slave away day and night to create more of them.”
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