Think of wealth as a machine. Whatever you put into the machine will determine what you get out of it. Good inputs will result in positive outputs. Bad inputs will result in negative outputs or, worse, a breakdown of the machine.
Unfortunately for many Americans, they don’t understand how the wealth machine works – constantly filling the machine with bad inputs that push them further and further away from financial independence. Worse, bad inputs put many Americans in the position of constant struggle.
April is Financial Literacy Month, and it brings the need to make financial literacy an integral part of education as reading, writing, and arithmetic.
Why should we be pushing financial literacy?
Financial stress is a widespread problem. According to the Federal Reserve, as of 2017, 40% of Americans surveyed by the Fed did not have enough cash on hand to cover a $400 emergency. That’s likely since half of Americans, or 120 million adults, do not practice responsible finances.
We hear a lot about the expanding income gap between the rich and everyone else. Still, policymakers don’t offer many practical solutions beyond redistribution, which does not get at the heart of the matter.
For many experts, financial literacy is the logical starting point in the discussion of closing the income gap. In a recent CNBC post, some high-profile figures in the world of business and finance offered their key financial tips:
Avoid Credit Card Debt…
What is Mark Cuban’s first piece of financial advice? Avoid using credit cards. Credit cards are an expensive form of borrowing, with the average interest rate at 15.99%. This goes along with his advice to avoid spending more than you make. Why? Interest expenses take away from capital that can be used to build your treasure chest and not take away from it.
Start Early…
Ray Dalio, the founder of hedge fund giant Bridgewater Associates, is a big advocate of growing your money through investing and starting early. The sooner you start, the longer you have to grow your portfolio.
Understand Compounding – Good And Bad…
Just as the right money moves can compound for the positive, bad money moves can compound for the negative. Bad money moves like excessive debt, and speculative investments that result in losses can compound and put you further and further behind the eight ball in your pursuit of financial freedom.
What’s worse than debt or speculative investments? Borrowing to invest in speculative investments. Unfortunately, liberal margin investing policies make it far too easy for novice investors to trade on speculative stocks by essential borrowing, which could result in losing more than what you start with.
Education, Education, Education…
Former SEC Chairman Jay Clayton said this about financial education:
“In modern society, if you are not educated about credit, savings, and investment, you will not make good decisions.”
We discussed how bad financial decisions could compound – making it harder and harder to get ahead. Clayton believes the key to avoiding bad decisions is to educate yourself:
“The earlier you’re educated, the better your decisions, the better your outcomes.”
These financial tips aren’t groundbreaking or earth-shattering, but they make complete sense. Educate yourself to avoid bad decisions, and one of those bad decisions to avoid is getting into debt – especially credit card debt. Interest expenses and other diminishing expenses only take away capital that you can use for building instead of tearing down wealth.
What should you do with the money you save from needless expenses? Invest and invest early.
Make your money work for you and invest in tried and true assets that have performed over time – not speculative ones that can wipe out wealth instantly.
Kyle Jones is a co-founder and Key Principal of TruePoint Capital, LLC. Kyle is responsible for the company’s strategic planning, investment decisions, asset management, and overseeing all aspects of the company’s financial activities, operations, and investor relations.
Kyle obtained a Bachelor of Science degree from Texas State University – San Marcos, where he also played Division 1 Baseball.
