This is a super simple video that’s aimed at people that have decided to change their behaviour in order to achieve financial enrichment.
After all, just wanting it isn’t enough. You need to change your behaviour in order to achieve the desired results.
So, in this video, we’re going to cover the basics – the minimum that you need to know about financial enrichment. I’ll share the most important tip of all at the end of the video. Don’t use that as an excuse to skip straight to the end! It’s important that you really understand the material, so we’re going to go through it step by step.
1) PROTECT YOURSELF AGAINST MISCONCEPTIONS
At some point, you’ll have heard someone say something along the lines of “I knew a man that was so poor, the only thing he had was money.” There are infinite variations of this saying, like “I’d rather be poor than dishonest”, or “What’s the point in being rich if we’re all going to end up six feet under.”
All those sayings are misconceptions, fallacies. The term ‘fallacy’ comes from Latin and means ‘to deceive’. A fallacy is something that looks to be true on the surface, but upon further inspection it turns out to be untrue, wrong, or incomplete. Some people call fallacies ‘limiting beliefs’.
“He was so poor that all he had was money.” Fair enough, it makes sense that someone that ONLY has money and nothing else is missing some of the most important things in life: love, true friendships, health, culture… ok. But why isn’t it possible for him to have money AND ALSO all the other valuable things in life? The search for financial wealth doesn’t have to come at the cost of everything else. Personally, I’d argue that in order to achieve financial wealth, everything else in your life has to be in order first.
“I’d rather be poor than dishonest” – again, this is a fallacy. Why would it be impossible to be honest as well as financially wealthy?
Hopefully, these examples will have made you notice how these fallacies can have an extremely destructive effect: when I let myself believe these fallacies, I WON’T EVEN be interested in the steps to becoming rich. I won’t have the WILL to actively look for new information, to change my behaviour. These fallacies are one of several components of limiting beliefs. They are a mental prison that diminish our will to open the door. There’s no point in giving the key to someone who strongly believes in these fallacies. They won’t be interested in turning the key and opening the door.
It might seem simple, but this first step is always difficult, and anyone who manages to overcome it deserves to be congratulated.
2) DEFINING USEFUL OBJECTIVES
This is the second step. Once I’m no longer being held back by the limiting beliefs posed by common misconceptions. In this step, I’ll be able to have a vision, to define my objectives.
In order to set good quality objectives, I need to have a basic knowledge about financial education.
For example, if my objective were to be:
– ah, I want to go on holiday, buy a new car, and live in a nicer area
Why would financial education be important? Without a basic knowledge of financial education, all of these goals could be achieved in one day. It’d just be a case of getting out your credit card, or paying for everything in INSTALLMENTS.
In fact, it’s what an absurd amount of people does all the time. They’ll go into the travel agents, buy the holiday package, and split it into 10 payments. Then they’ll go to the dealership, and spread the cost of a new car over 24 months. On their way home, they’ll stop off at the estate agents, who’ll show them the house of their dreams, and get them to sign contracts, promising to give them money for the next 30 years.
Don’t you think that this seems crazy? Unfortunately, it’s what a lot of people do. At least they met their objectives! Holidays, a new car, and the house of their dreams. The problem here is that these are all objectives to do with CONSUMPTION, not with financial enrichment.
What would be an example of an objective to do with financial enrichment? It’d be something along these lines:
– I want to improve my knowledge about financial education, I want to pay off my loans because the interest rates that I’m paying are far too high. I’d like to build equity and accumulate investments in different areas.
For a lot of people, these objectives might not seem as “cool” as going on holiday, getting a new car, or living in a nice house.
A lot of the time, the only way to achieve financial enrichment is to give up certain immediate pleasures, especially ones that you have to pay for in instalments. In other words, you have to take responsibility and stop spending money you don’t have.
In fact, this is an important point that deserves to be highlighted:
3) UNDERSTAND THAT INCOME ALONE ISN’T A MEASURE OF WEALTH
You simply wouldn’t believe how many people get in touch with us via email. Our main communication channel is here – we can’t always promise that we’ll get back to you on social media every time. But every time someone sends us an email, our team will respond. There are some people who get in touch with us that earn a lot of money – anywhere between $5,000 and $20,000 a month, but deep down, they know that they have nothing.
Do you know why? Because they spend everything, and besides that, they still have debts in the form of instalments. They have debts spanning the next 30 years. They don’t invest correctly, they leave money in savings accounts because frankly, they’re just lazy to learn. They would love to see their savings grow, but for lack of technical preparation, they don’t know that they’re losing money because of inflation. They think their stock funds are good, but they don’t understand that the bank’s management fee also ends up losing them money. They don’t invest in themselves, they think they have reached the peak of their career and are therefore no longer making progress. In short, although these people might be doing well financially TODAY… they know that it’s probably all going to go DOWNHILL.
At the same time, there are people who earn a lot less but still manage to have a nice car, a modest apartment, and in terms of assets, are richer people. From the point of view of financial growth, they are people who grow richer every year, because they save and invest their money. They also invest in their own education – they take courses, become more qualified, get promoted. In short, although these people might have a modest income today, they’re GROWING as time passes.
A basic idea about financial enrichment that we need to get our heads around is that it’s not just the income that matters. Income is something that matters in the present moment.
What matters is the process. Think back to the physics lessons you used to have in school. Do you remember studying KINETICS? The study of movement. Two of the factors that play a role in movement are speed and acceleration.
INCOME is your current speed. That is, it’s a snapshot of where you are today. In the long run, it doesn’t really matter whether your income is high or low. Why?
Because WEALTH is the acceleration. That is, whether it’s accelerating or slowing down. Keeping the current acceleration, what will happen in a year? And in five years from now? What about in ten years from now? There’ll either be a process of enrichment or impoverishment.
I already mentioned this in our video that summarises the book The Richest Man in Babylon. If you haven’t seen it, check it out and download the e-book.
4) ENRICHMENT
Everything that we’ve spoken about so far has been building up to point 4. How do I go into accelerated mode to increase my speed? How do I let my income grow more and more?
The most urgent thing that needs doing is covering all the holes in the bucket. If today, you’re paying off loans or finance options that have a high interest, something has to be done so that this doesn’t RUIN your equity.
In some special situations, there are opportunities for instalment plans with low interest rates that might help. For example, if you had opened your own business, and it brings in a tidy profit. You end up paying a little bit of interest because you’ve taken a financing plan for your business. In this case, your profit is so high that you can afford to pay the interest and still make a profit. There are a thousand other exceptions. But as the title of this video says, this is the BASICS, it is THE MINIMUM YOU NEED TO KNOW about enrichment, and therefore we won’t go into detail about exceptions and special situations.
So, the basic idea is to change your habits of consumption so that every month, you’re saving and investing your money. The leftover also has to be spent wisely. It’s best to invest your money in different ways: both in low-risk funds and in controlled risk financial investments. Also make the effort to invest in yourself, so that you become an increasingly capable person in managing your equity and making it grow.
It’s easier said than done though. It might seem simple, but there’s VERY FEW PEOPLE who’ll actually implement a change in their behaviour.
What specific actions can we take?
5) BUILD YOUR ASSETS
There are many ways of doing this. I’m going to share with you a really simple little tip that works for a lot of people. You should direct your income to three broad areas in the following order:
1 – one part as an investment. Once you receive your salary, automatically put some aside to invest
2 – another part is for your expenses. When you want to make bigger purchases, use the money from this little pile of expenses savings. It makes more sense to save and buy something in one transaction than to pay in instalments with interest
3 – after putting money aside for investments and expenses, you can use the remainder to pay for all your other expenses (transport, food, any other recurring monthly expenses)
This concept is explained in more detail in our The Richest Man in Babylon video. Click here to watch it and download the e-book.
Now, let’s move on to the most important point of all, that I promised you I’d share at the end of the video
6) OVERCOMING THE GREATEST LIMITATION OF ALL
Remember how we spoke about fallacies and limiting beliefs? The fallacy of them all is, undoubtedly, “But I can’t stop spending and start saving to invest TODAY! There’s never anything left for me! When I start earning more I’ll be able to, but not today.”
This is the most damaging thought for your enrichment. Remember that I come into contact with loads of different people, many of them who have a huge income, but this isn’t enough for them.
The truth is that with the wrong mindset, you’ll never get there. People with the wrong mindset will increase their spending as soon as they start earning more. When they earn a raise, they get a new car.
If you want to achieve financial enrichment, you have to sort out your mentality and learn to behave differently. First, you have to save and invest. Only then can you organise your finances for the rest of the month. The biggest mistake you can make, which will ultimately lead to impoverishment, is to spend first and then try to save what’s leftover. The truth is, there probably will never be much left over to save.
7) NEXT STEPS
From the moment we start to do all this, we achieve the ideal acceleration, that is, we enter the process of enrichment. Does this make sense?
Let’s be honest: it’s going to take a long time to get rich if I’m moving, say, $100 into my spending fund and $100 into my investments. It’s better than nothing, of course. But it’s just the first step.
To take the next steps, I have to focus on creating increased value. It doesn’t matter if I offer this greater value as an employee, as an entrepreneur, as a civil servant, as a service provider, as an importer, as a merchant. When I can increase the value of my work, my income will increase by leaps and bounds.
However, let’s take it one step at a time, and continue the conversation. This video was pretty simple on purpose, to hopefully teach you the basics, the minimum you need to know.
NOW, what I suggest is to visit this link, where you’ll be able to download the e-book, which I really recommend that you read. It’s a mini e-book that builds on the conversation that we just had, and it’ll really make a huge difference to your understanding of financial education. My name is Seiiti Arata, from Arata Academy. Cheers!