Financial success relies on two things.
- Having enough money to meet your needs both now and in the future
- Knowing what to do with the money when you get it.
If the knowing what to do part is missing, it will not matter how much money you earn or how long you earn it. You may have noticed how few lottery winners, rockstars, and professional athletes end up with a lot of money. They had it in hand, but did not know what to do with it.
Earning money is hard enough without letting it disappear as fast as it is earned.
Education, skill, work ethic, diligence and ambition can easily look after number 1, but it takes at least modest financial literacy skills to look after number 2. Set about learning those.
- Know what earns money. Money is a trade. Your skill, time, energy and strength for someone’s money. Getting money is not the same as earning money.
- Know that money is a way to move value to the future. Saving is merely the allocation of some of today’s money to a future time when spending will be important.
- Know that investing is the tool that moves the money with a little extra added because you waited. Learn about the ways to invest. Each has its own characteristics.
- Know that debt is a way to move your money from the future to the present. It allows you to spend money you do not yet have. There is a fee for this convenience – Interest. Debt reduces your options for the money you acquire in the future. Be sure the trade is worth it.
- Know that there are risks in life. Insure the ones you can and build flexibility for the others.
- Know specifically what you want, when and what you have to get it with.
- Be organized and disciplined. Keep track of how you are doing compared to how you wanted to do. Compare to no one else. Their situation is different.
Revenue alone cannot solve a debt and spending problem. To avoid the problem you control expenditures at a level below your income. If you lack the necessary skills to control spending, you will always be in debt and falling further behind.
If you would like to see real world evidence, take a serious look at how the government of Ontario does things. They have lost their way and do not even know they are lost. They are running out of methods to get money and that won’t help.
Follow a different path.
Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.