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Financial Literacy: Back to Basics, Life and Reality

A practical approach to shifting the mindset from a poverty to a wealth mentality.

Scratch babies: a term used to describe a generation that has to start over from scratch in terms of building wealth. A child is born to parents who never had the tools for or was exposed to the "secrets" to obtaining wealth. Because the parents were never taught financial literacy, they were not able to pass on this essential knowledge to their kids. These kids grow up to be adults, learning from their own money mistakes as they go along - the same mistakes their parents made. Scratch babies. Not realizing they were misguided by the financial behavior their parental role models displayed. Nor realizing how they are passing on these survival-type tactics to their own kids. And thus the cycle starts all over again. It’s bout time we break this cycle - once and for all.

It’s no secret that life comes with more distractions these days than our parents and grandparents never had to deal with. We're constantly faced with more choices than ever before. From picking the perfect series to start on Netflix to deciding which app to use to have your dinner delivered hot and ready to your front door. Having options is not inherently bad, but when faced with choosing between being comfortable now or being comfortable in the future - our default human brain tends to want comfort and pleasure now.

With every other priority lined up,  it’s easy to disregard decisions that do not have an immediate impact on our financial goals. But realize - If you put your foot down to be disciplined today, you can better set yourself up for long term, sustainable success.

I doubt our parents struggled with the idea of wanting “instant gratification” like we do today. I blame it on the TV, movies and definitely on social media. We conveniently see the successes and fruits of peoples labor but rarely see the struggle, energy and effort that was invested before the success. As a result, we tend to think there is a magic-cure-all solution to every problem. The simple fact is, there are still some things that require good ol fashioned patience, discipline and intentional effort to achieve.   

Enough about why the problem exists, what is financial literacy?

According to Investopedia, Financial Literacy is the education, understanding and ability to manage various personal finance matters in an efficient manner.  Including areas such as budgeting, saving, investing, insurance, paying for college, real estate and retirement.

You may be wondering, how can you prepare for long-term financial goals when you're still trying to plan for current obligations..?

Baby steps. Remember, Rome wasn't built in a day.

The first step is to shift the mindset. Of course paying the light bill is a priority but understand - making certain changes today can help get you to a place where we can start investing for the future.

In his book W.I.N., Rob Wilson explained how a poverty mentality is reactive in a way that it reacts to life's events and emergencies as they happen. As opposed to a wealth mentality which is proactive in the sense that it anticipates and plans for future financial obligations.

More importantly, a wealth mentality includes the understanding that every single dollar can start the process of building wealth - no matter what income bracket.

Trust me, I’ve been there! Especially when you consider that my education and professional backgrounds were all about the theory of money, I was still operating with a poverty mentality.

Just because all my bills were paid I was convinced that I was financially responsible but... not so much. I wasn’t being proactive in my goals and my plans to reach them. I kept telling myself, “once I make some more money I will start saving and investing more...”

The most important part of my breakthrough was realizing there is no better time than NOW to start acting with a wealth mentality.

The good news is - we can make the choice anytime to start making better financial decisions. 

Why is financial literacy important?

Because being financially illiterate results in many people becoming victims to predatory lending, subprime mortgages and high interest rates. Potentially resulting in bad credit, bankruptcy or foreclosure.

Based on research data by the Financial Industry Regulatory Authority, 63% of Americans were not able to answer at least 3 out of 5 questions about economic or financial transactions encountered in everyday life.

Personal financial literacy is more than just being able to balance a checkbook or compare interest rates on loan terms. It also includes skills like long-term goal planning, commitment and the discipline to make daily choices that support your goals.

The book titled The Richest Man in Babylon is a great place to start and a perfect example to show that the fundamental rules to accumulate wealth are timeless and universal. This book recommends 7 basic principles to building wealth.

“The 7 Cures for a Lean Purse”

  1. Start thy Purse to Fattening - Pay yourself first. The book recommends 10% saving. This number might not work for everyone but either way - just start somewhere. Remember, every dollar has the power to start the accumulation of wealth.

  2. Control thy Expenditures - This is where we face the hard truths about our spending habits. Once we understand our current reality, we can now set a financial foundation to live by.

  3. Make thy Gold Multiply - Saving is great, but worthless if it just sits there. Let’s allow our money to work for us. Compound interest is the 8th wonder of the world.

  4. Guard thy Treasures from Loss - Basically encouraging us to make informed decisions and smart investments with our money.

  5. Make thy Dwelling a Profitable Investment - Whether if you rent or own your home, either way you're still paying a mortgage - either yours or your landlords.

  6. Insure a Future Income - If we live long enough, there will be a time when we're no longer able to work for our money. A well executed retirement plan or the set up of passive income streams is one way to ensure future stability.

  7. Increase thy Ability to Earn - By investing in ourselves, improving our knowledge and skill-sets, we can afford ourselves with more opportunity for increased earnings.

Before you figure out how to implement these fundamental principles, think about why you want to in the first place. Knowing your why will help to encourage and keep disciplined when faced with those impulse decisions.

Think about your ultimate financial goals if you haven't already (write them down so you know it’s real). Do you have any debt you’ve been wanting to payoff? Any savings or investment goals that you haven't started on yet? Having this understanding will help to remember WHY you agreed to take control for the sake of your future.

The first step to implement this new understanding is to create a budget. Set aside the time to get a clear picture of your financial situation. All too often, we just make money and pay bills without realizing exactly how much is flowing in and out. With money being one of those weirdly taboo topics, it can bring some anxiety to face the facts. But only after facing the truth can we put ourselves on the right path. There are plenty of tools available to help structure and plan a budget. I use Budget Action - a platform that gives you a debt freedom date (for free) and offers a month to month plan for accelerated debt payoff and savings schedules.

A budget is like a financial roadmap because it will be a journey. Achieving financial success is not something that happens overnight. It will require commitment and informed decision making. But it does get easier, especially when you see the dollars stackin’ up. When you see the fruits of your labor building up in your bank accounts, this can be motivation like no other. They say it takes 21 days to build a habit, I’d give it a strong 30.

It can be hard to say 'no' to family and friends who want to meet for "quick bite" - just because you’ve already reached your entertainment budget for the month. But once you realize the pain was mostly FOMO, this will help you come to terms with the decision to put your long term goals as priorities first.

Being disciplined to gain these small wins for a month will show how building momentum helps to be more focused when implementing this new wealth mentality.

Putting in the hard work is how we build strength and gain power.  Willpower is like a muscle, the more you exercise it - the easier it is to FLEX.

Drop a comment if you feel so inclined, I'd love to read your thoughts.

We don't have to go at it alone, let's build together!