The Four Aspects of Money: The Fundamentals of Financial Literacy
February 7, 2023
3 min read
Many of us have a fraught relationship with money. We want it, we fear it, we are anxious we will run out. Did I mention we want it? We want money but we may not be clear on how to get it, keep it, and grow it.
If you want to become financially secure and worry free, you must have a clear understanding of what money is and what it is not. Money is a means not an end. You can’t buy happiness, love, and satisfaction.
Money will not solve your problems. If you have a plan on how to use and deploy money it can be the means to solve problems, end worry, sleep better, and enjoy life.
Money is a good servant but a bad master.
Sir Francis Bacon
In order to have a financial plan you must have a clear understanding of the four characteristics of money and your relationship to them.
Your relationship to money can be separated into four aspects. They are:
You can earn more by getting a raise at work, getting a better paying job, or starting a side hustle. Get out of any ruts. Don’t be complacent in your job. Look for other opportunities that you would enjoy and that pay more. Ask for a raise.
Don’t rely on just the money from your job. The average millionaire has seven revenue streams.
Get creative. You can drive for Uber and Lyft, rent out an extra room on AirBnb, sell stuff you no longer need or want on EBay. Write a book and publish it on Amazon, or start a blog or podcast. Sell crafts on Etsy.
Review what your spending habits are and look to eliminate the things you really don’t need or enjoy. Many times we sleep walk through a lot of our daily spending. We are hypnotized by advertising and marketing and manipulated into making less than scrutinized mindful purchases.
Don’t buy crap you don’t need. Cancel subscriptions and other monthly recurring expenses that you can do without. Keep the small splurges that make your day delightful.
Redirect the money you have reclaimed from your scrutiny of your spending. Save that money.
Have a plan and a target goal for saving. Save for multiple financial goals like buying a car, home down payment, education, and other worthy life goals. You can set up several savings accounts for each goal you have identified.
To create wealth and get rich you need to invest your savings. Investing means purchasing income-producing assets that give you a return on your money.
That return is called interest or rate of return. When that rate of return is compounded year over year it starts to amplify and accelerate your savings.
Compound interest is the secret to accumulating wealth and getting rich.
The best place to invest for the long term is the stock market. Since 1871 the US stock market has a compound annual growth rate of 9.07%. That is a trend that will most likely continue give or take a bit.
At 9% compounded interest you double your money every eight years.
A good place to start investing in the stock market is to open an account online with one of the big brokerages. Search online and pick the one you like and has reviews that you feel good about. Schwab is a good one.
Invest in funds that invest in a broad basket of stocks. Look at low cost index funds like ones that track the S&P500. There are also funds called ETFs that perform similarly. Vanguard funds are good ones to look at.
Educate yourself and start small. Tony Robbin’s book Money is a great place to start. Jim Cramer has great books and information every day on the market.
Understand the four legs of the money table and your relationship to them. The key is to get started.
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