The concepts or principles that a financially educated person knows help them to have a prosperous life because, once known, the information will be applied.
There are several financial principles that govern the financial side and that, if each of us respected them, we would be able to be satisfied with our lives.
A financially educated person knows:
Active income vs. passive income
Many people work to earn more, but they inevitably end up spending more than their income. Once they have discovered passive income, active income will be the basis of passive income.
Passive income is that income for which you no longer work, but your money works for you.
Once you have started to have an active income, you can put aside, without too much effort, an amount and invest that money, so that it produces interest – more money.
Budget
Being aware of your money: how much you earn and how much you spend helps you have visibility over this aspect of your life. You can be able to satisfy your needs and desires to the level you want, without feeling frustrated or overwhelmed by the expenses you have.
Needs vs. wants
Establish what the needs in your life are and what the desires are. We work for both needs and desires, but do you work for your needs and desires or for someone else’s?
It is necessary to establish what your needs are now and what your needs are later and what your desires are, as well: from now and later to feel that everything you do, you do for yourself and no one else. Why do I say these things, because: we live in a century of speed. Everything is fast-paced and the emphasis is more on appearance than on essence, and you can, in all this tumult of life, end up doing something completely different: paying for the needs and desires of those around you and also not having time to think about what your real needs are; to differentiate between a need and a desire.
Capitalized interest
Capitalized interest is a concept that Einstein called “the eighth wonder of the world”. The eighth wonder of the world comes from the effect that this interest has on your life. When you owe the bank, you saw that you end up paying double in the end; double the amount borrowed. When you choose to invest the money, you receive double. This effect helps your money make other money, to work for you while you work or have fun; that is, all the time.
If you choose to save and invest, keep this concept in mind. This concept, through the time and money allocated, will put you in a position to create the passive income you need to achieve your medium and long-term goals.
Financial Products
Financial products exist on the market to benefit you. Don’t neglect them and find out what each product does, why it was created and use it as such. Trust the financial market and use it to your advantage.
There is no product on the market that was designed to harm you. Whoever says this has not understood how it works or has not used it as such. A financially educated person understands the entire mechanism and chooses to use the products on the market to his advantage. He chooses the products that he needs for his objective(s) and takes care to use them according to their mode of operation.
Cost average
Cost average is a concept that helps you understand how the economy works and make decisions that are right for you and your goals. The economy has a cycle. The market rises and falls. When people invest, they want to make a quick profit, to immediately increase the price of the purchased good, but this does not happen immediately.
Cost average teaches us to be consistent, to invest in all market cycles and to benefit from declines. A profitable investment is when you buy cheap and sell expensive, but also when you do not invest a lot of your time to speculate on the market. This concept teaches you to invest in all points of the market, to accumulate.
Cost average encourages you to buy in all cycles and wait: your investment will bear fruit as expected.
Principles that a financially educated person applies:
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Don’t spend more than you can afford
The fact that you now earn more and can afford more does not mean that you have to spend everything you have. It is necessary to put aside, to save your money, because otherwise it will go to the stores where you buy from and you do nothing but increase the profit of others.
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Save and invest money no matter how much you earn
You can choose to invest money and receive money by being a customer of large retailers. Here I want to mention Ioana Mărgineanu who became an investor on the financial market and in a discussion with her she brought to mind the fact that she likes to be a consumer knowing that she is also an investor in that company.
You can find the discussion with Ioana here:
When you invest, when you buy shares from a company, you call yourself an investor and if you are a client, meaning you bring profit to that company, you also benefit from the company’s profit through that share, so it is necessary to buy (it is normal) but also to invest in order to enjoy when you increase a company’s profit, because it means that you also increase your profit.
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Use time to your advantage
Time passes and if you can still make money, time never comes back. Use time to your advantage and even if you don’t have much money to put to work, put in as much as you have. Using the concepts of capitalized interest and average cost, you will end up having more money than you invested and you can end up gaining time, accumulating an amount that will allow you to retire early from work, enjoy your family and free time earlier than 65, 70 years old.
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Buy goods, not things
When you make purchases, be aware of the power of your money and the results of your purchases. Do you buy an asset that will appreciate over time or do you buy things that depreciate over time?
You may know that a car, once you take it out of the dealership’s door, depreciates by 15-30%. This means that from the moment you walk out the door of the dealership, its value is lower and you can no longer sell it at the price you bought it for, but 30% less. A real estate, on the other hand, you will sell for more than you bought it for. Real estate appreciates over time, even if it is used: whether you live in it or not. Furniture, on the other hand, depreciates. That is why you do not allocate a lot of money to all those things that after a while you cannot sell them even at the price you bought them for. Take care of your money, otherwise who will do it for you?
A financially educated person constantly educates himself, no matter how much information he has
Are you responsible for your life? Now we are free to do what we want, we are free to live our lives the way we want, but the results will not stop appearing. Are you a financially educated person? You don’t need much, but to know, but also to apply all the principles discussed in the article.
I invite you to constantly inform yourself and apply the rules and principles of financial education, both those found in books, but also in online materials, such as this financial education blog: https://laurentiumihai.ro/
Do you want to have a fulfilled life, do you want to be satisfied with your choices? Well, then empower yourself, educate yourself and choose responsibly for your future and that of your family. You are the one who is directly responsible for your future.
Success in becoming aware of money and your financial education!
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