What You Need to Know About Money
The average guy on the street thinks he knows a lot about money, but the truth is that most people really don’t understand much about it.
They know that you get it by
- inheriting or
- winning ,
but few know what to do once they get their hands on it.
Some do realize that it’s a good idea to try to save a portion of their income, but they may not understand why people should do this or why it is important to know where and how to achieve this goal.
These all are reasons why men and women develop problems during their lives that often become difficult or impossible to overcome.
It Pays to Learn the Basics
If you learn a few things about money early in life, you will be more prepared to deal with difficult financial issues that will come your way.
Therefore, let’s take a look at some of the things you should understand and do to make sure you don’t get into financial trouble.
Money Is a Tool
The most important lesson for you to learn is that you should never take having money for granted or abuse it in any way.
Although it may appear that you will have an endless supply of it, this rarely is the case.
- If you learn to view money as a tool, you will be much more likely to get the things in life you wish to have.
- If you waste it, you’ll end up with little or nothing.
In other words, you cannot both spend and have it, too.
Why Saving and Investing Are Important
Earlier in this article I mentioned the three ways that people normally get money.
However, there is one more, which is to take some of what you have and put it to work for you.
The way you do this is through developing a steady habit of saving and investing.
Those who understand this know that this is the main way that people build and retain wealth.
They also know that unless you are born wealthy or get very lucky, doing this takes a good deal of time.
Compound Interest Is the Secret
Compound interest is the vehicle by which money grows. Here’s a simple example that shows how it works:
- Let’s say you put $10 per month into a savings account that is earning 5% annually.
- At the end of the first year, you have saved $120 dollars, and your money has earned $6 in interest. You now have $126.
- If you use the same strategy the second year, you’ll have $258.30 because you have doubled your investment and added the interest on it for the two years.
- If you continue doing this for ten years, you’ll have saved $1585, $385 dollars of which will be from interest.
The chart shows you the details, but the point is that for only saving $10 per month over ten years, you can earn $385!
This is money that was earned via your investment, not your sweat.
Clearly, the more you invest, the more you will earn, and the higher the interest rate you are able to negotiate the more money you will make.
This, of course, is a simplified chart due to the fact that you will have to pay taxes on the money you earn by investing it in this way.
The Good News
The good news is that if you don’t want to pay taxes, there are other investment vehicles you can use aside from basic savings accounts that will allow you to defer or even avoid paying them completely.
If you choose these types of investments, your money can grow tax free for many years, but the catch is that you may not be able to access it as easily as you can with a straight savings account.
However, once you have a nest egg built up, you can choose to use a variety of investments based on your own needs and desires.
For example, you can place money into a Certificate Deposit that you will be able to borrow against if an emergency arises, but will grow tax free until you cash it in.
The trick is to learn enough about each type of investment so that you can grow wealth while at the same time protecting your principle.
It’s always best to make sure you get the return of your money instead of just trying to get a return on your money.
What Happens When You Don’t Save or Invest?
Of course it’s always possible that you may not be interested in setting money aside for your future.
You certainly are allowed to just spend that $10 per month to buy things you would like to have. However, once you spend it, it’s gone.
- lose your job,
- have an accident,
- get divorced or
- develop a serious illness
There will be no money available to help you as you sort through these types of problems.
You may think that borrowing will help, but it won’t. It’s a trap that can plague you for life and may even ruin you.
When you start borrowing in order to meet your monthly bills, you are living beyond your means. The more you borrow, the deeper is the financial hole you dig for yourself due to the fact that the interest you pay on your loans will be so high.
Building wealth while you are able to do so instead of squandering the money you have is the only way to protect yourself from unforeseen circumstances that may otherwise ruin your credit and lead you into bankruptcy.
What About Spending?
Everybody knows that you have to spend money in order to be able to live. However, the methods you use for doing so can have a major impact on how well you will be able to increase your wealth.
If you learn the difference between wants and needs, it’s easy to determine the best uses for your money.
- Needs are things you must have in order to survive.
- Wants are things you would like to have but are not requirements for survival.
It takes relatively little money to take care of your basic needs, so you should focus on them if you want to get ahead in life.
By sacrificing the present in order to have a better future, you can grow your finances to a point where you will be able to fulfill your wants, but it takes self discipline and time to get to that point.
Using a “stupid phone” today translates into being able to own any type of smart phone you want to have in the future!
Growing Wealth Is the Secret to Having a Better Life
There isn’t a person in this world who wouldn’t want to have a beautiful home, a nice car and enough money to be able to take great vacations.
However, trying to have those things by borrowing is the biggest mistake a person can make because debt is a trap that makes life miserable for those who depend on it to live the good life.
It takes time to build wealth. If you try to take shortcuts, you’ll never have it.
This means you’ll also never have the security and peace of mind that go along with it.
- If you earn a great deal but spend it all as you go, you’ll never be secure.
- If you learn to slowly build your savings, invest wisely and spend cautiously, life will be good for you.
Learning what you need to know about money and then acting on the insights you gain from doing so is the only way to find peace and security in this hard life we live.
It’s never too late to start.
I wish you good luck in your endeavor.
Do you see the wisdom of saving and investing?
© 2016 Dreamworker