How To Change The Fate Of Your Finances
Fathers in our society have to fill many important functions that are crucial for the health and success of the family. If I could sum up a father into 4 basic functions it would be to: 1) Protect 2) Provide 3) Love and 4) Guide. For the purpose of this article I will focus on the function of guidance in the area of finances. Before you can teach someone else something, you must first learn it yourself. By the end of this article I hope that a light bulb would turn on in your mind and that it would lead to the finances of your family going to another level.
Finances is a peculiar topic in our society that I can most accurately describe as a paradox. If you were to ask every individual person if they would like to be financially secure, 99% would say yes. The paradox comes into effect because although most people want to be financially secure, 99% of people make decisions both short term and long term that is detrimental to the financial health of them and their family.
There was a French psychologist named Gustave Le Bon who is seen as the father of a branch of psychology called "crowd theory". One of the theories he introduced was the "contagion crowd theory". In this theory he states that once individuals gather into a large crowd, they have almost a hypnotic influence on each other that leads to irrational, emotional behavior. This psychological theory applies to finances because as a society 99% of us handle finances using the "contagion crowd theory", whether we realize it or not.
If you don’t believe you are following crowd theory with your finances, then ask yourself these questions:
Who taught you about finances?
Who taught you that your most important investment is a house?
Who taught you that a stable job with benefits and a pension is what you should be aiming for?
Who taught you that a college degree is the key to financial security?
Who taught you that you need a loan to achieve financial objectives?
Who taught you that your current financial troubles are caused by what the government did or did not do?
The questions above represent many societal norms regarding how we think about finances. The truth is that 99% of us learned these things either from society or directly from our parents, who learned it from society. Those who are truly financially free do not hold these beliefs.
Do not misunderstand what I’m trying to say. A college is degree has value and anyone who is able should get one. But to believe that it guarantees you financial security is misleading. We all need someplace we can call home, some place to live. 99% of people have a house as their biggest life investment but when you add up the expenses for your home over a 30 year period including interest on a mortgage, property taxes, home insurance, landscaping, painting, cleaning etc. You soon realize that a home is your largest expense not your greatest investment. There are many more misplaced beliefs, but I will leave it there for now.
The question you may ask at this point is what should I be doing to become financially free? That question depends on what you define as financially free. The truth is in life the more you put in the more you get out. The greater the sacrifice, the greater the reward.
Using basketball as an analogy, there are many levels to playing basketball. Based on the level of success you want to achieve what you must do to achieve it is different for each person.
Level 1 – Someone who wants to be capable enough to play street ball must play regularly
Level 2 – Someone who wants to make their high school team must play regularly and practice regularly
Level 3 – Someone who wants to make a college team must spend a significant amount of time developing position specific skills along with working out a significant amount of time
Level 4 – Someone who wants to make the NBA must have their life consisting of just 3 things. Eating, sleeping and basketball.
Every level required a different level of sacrifice to achieve it.
Ask yourself this question, what level of finances do I really want to achieve?
Level 1 – Financial Stability
- At this level you can pay your bills and living expenses
Level 2 – Financially Free
- At this level you are free of debt and have excess money to save for retirement
Level 3 – Financially Prosperous
- At this level you generate enough money in excess of your expenses that you can now invest and enjoy some luxuries
Level 4 - Financial Autonomy
- At this level, your investments make so much money in excess of your expenses that the state of the local or global economy cannot affect your financial security.
The level of finances you achieve is based on 2 things. Your level on Financial Knowledge and the application of this knowledge. Sadly, financial knowledge is not taught in schools, nor easily found. You must dig for it. The more financial knowledge you accumulate the better the financial decisions you will be able to make in life.
To exponentially increase your financial knowledge, I recommend that you start out reading 2 books and watching 1 video:
Book 1 – The Millionaire Next Door (This book will teach you the importance of entrepreneurship and living below your means)
Book 2 – Rich Dad Poor Dad (This book will change the way you think about money and employment. It will also teach you that continually investing and creating passive incomes is the key to financial prosperity.
YouTube Video - How The Economic Machine Works by Ray Dalio (attached below)
This billionaire condenses a 4 year Economics degree into 30 minutes in a surprisingly entertaining way. After watching this video you will understand why the governments around the world support a cultures of excess lending.