This book will teach you the basics of personal finance
Why are so many people stuck in the “rat race.”
Are we working for ourselves or others? Most of our society are trapped in a race against themselves. A race where they constantly have to work hard to catch up with the bills and taxes.
Once they get a rise, bills and even bigger taxes catch up with them. It is an eternal cat and mouse game, but why do so many people prefer to stay in this “rat race?” Fear and greed.
Many people live in constant fear about their financial situation. Fear of not paying their bills. Fear of being fired. The fear of not having enough money. The fear of starting over. Fear of not doing what society and family expect them to do.
Then there is greed. Most people have a price, once they get offered a high enough loan, most can’t resist the thoughts of that “safe” paycheck at the end of the month and all the things they could buy with it.
When those two factors are setup, they are trapped. Trapped in the pattern of getting up, going to work in a hurry, stressing out on a daily basis. Working hard on something they often not really like. Then at after a long month finally the paycheck and bills. Their days, months, years, are run by a constant cycle of fear and greed.
Fear of losing their job, and greed of getting that paycheck. Saving only enough to occasionally go for vacations and forget about the constant, unhappy struggle.
Most people are so conditioned to that routine that they don’t even think about it anymore. They never question it and just resign to that cycle as something normal. Instead of confronting the fear and reasoning with their mind, most react emotionally to it instead.
Individuals who are stuck in this never ending race often don’t seem to be happy while they rush to work, scared of arriving too late and getting fired.
“Rat racers” are stuck in the rut of doing what they were conditioned to do. After having studied and obtained good grades, they now have a good paying job. But despite having followed all the standard advice from teachers, family, and society, they don’t obtain financial growth.
Greed takes over emotions and makes people want to raise their living standard, for example buying a bigger house, or a new car. Even if that means taking higher mortgages and thus, effectively undoing their raise.
To get out of this rat race, people have to gain financial knowledge. They have to understand the difference between an asset and liability and buy assets instead of liabilities.
Standard education systems don’t teach financial intelligence
Most of us are thought from a young age that if we study brave and get good grades, we will get good jobs and live a successful life.
But the world is full of highly educated and talented people who are poor. What they miss is financial intelligence. They don’t have a clear understanding about assets, liability, investing, accounting, and so forth.
Self-education is key to financial success
You can start to work on your financial education at any time but the earlier you start, the better.
The most important thing to invest in is yourself. So start to invest in your mind. Enroll in seminars and finance classes, read lots of books. Humans often learn best by osmosis, so getting a mentor is crucial too. Find someone who has already accomplished what you want, and ask them to teach you.
You don’t need to quit your job while you do all this, you can take advantage of your job and gather the necessary skills there, which will serve you in your own business later. For example, you could overcome shyness by working for a sales company. The company would probably train you with specialized people, and you would have the opportunity to overcome your shyness by selling to strangers.
Assets vs Liabilities
The fundamental applied knowledge what differences wealthy people from the rest is that they buy assets.
An asset is something which generates you more money, while a liability costs you money.
Assets can be anything from bonds, mutual funds, businesses, stocks, and anything else which produces an income.
Assets work for you. They produce you more money, and once you have enough assets to cover your expenses, you can reinvest that money into further assets. Generating a compound growth effect.
Unfortunately, most people mistake assets with liabilities. Houses, for example, are considered assets for some people, when in reality they are one of the biggest liabilities you can have. Houses cost you high property taxes and a life long mortgage, without generating income.
Learning to identify or create lucrative assets and investing in them is what will make you rich ant take you out of the rat race in the long run.
Predisposition to take risks is what distinguishes the wealthy
Rich people are predisposed to take risks. Poor and middle-class people tend to “play it safe.” They cling to their jobs because they are scared of what could happen if they lose their paychecks.
When the fear of losing is greater than the excitement to win, people tend to “play safe” instead of investing in something big. They say things like “I don’t want to lose.” But in reality, losing is part of the game.
You cannot ever win without having lost sometimes. Losing doesn’t mean to have failed. It means that you have encountered a situation from which you can learn and grow.
If you want to become wealthy, you have to learn to take risks.
Understanding taxes is crucial
The wealthy understand taxes, and they handle them fundamentally different than middle class and poor people. Rich people wrap a corporation around their assets. By doing that, they can hire professional accountants and lawyers, which help them reducing taxes and provide protection from lawsuits.
Here is how employees differ from corporations. Employees earn, get taxed and try to live on what is left. A corporation earns, then spends everything it can, and is taxed on anything that is left.
This simple strategy is one of the biggest legal tax loopholes that the rich use.
You can learn how to minimize your taxes too. It’s just a matter of educating yourself about the loopholes in the system. By learning how the tax system works, you can reduce how much is taken from you.
There are five main reasons why people are still unable to generate substantial asset columns, even if they possess the financial knowledge.
The author points out that he has never met a rich person who has never lost money, but he has met a lot of poor people who have never lost a dime. The lesson is clear, becoming rich does imply learning to manage the fear of risks.
Everyone has a fear of losing money, but the fear is not the problem, it is how you handle that fear what makes the difference.
Failure inspires winners and defeats losers.
Winners are not afraid of losing. Winners know that losing will only motivate and inspire them to work even harder. Losers won’t even try because they can’t handle failure.
Most people struggle financially because they play not to lose, instead of playing to win.
People’s doubts keep them poor. Getting out of the rat race is technically easy. But doubts keep them crippled.
Instead of analyzing like the winners, the cynics prefer to criticize. Their critique blinds them to see the opportunities.
The most common form of laziness is staying busy. Being busy is a way people get out of the way of facing what they don’t want to face.
Deep down most people know they are only avoiding something, that’s why they often get irritated if someone reminds them of that fact.
They a too busy to take care of their wealth. Too busy to take care of their health and even family.
Success is formed by more than education. It consists of certain habits. Wealthy people always work on themselves. They invest in themselves first.
Start building habits which bring you closer to your goal. Make reading a daily habit. Do something for your physical health every day. Dedicate time to the things that matter most.
Arrogant people often lose money because they think that what they don’t know is not important.
People often use arrogance to hide their ignorance. If you want to be successful, you have to learn to be humble.
If you are humble enough, you can learn something from every person and situation you encounter.