Forget what your parents taught you about money. With an emphasis only on saving, saving, saving, all your parents prepared you for was a rainy day. They didn’t prepare you for financial independence.
What’s more empowering? Having a reserve for hard times or not ever having to worry about hard times ever again? There is a difference.
In one case, you have a financial safety blanket, while in the other, you have financial independence. Financial independence means calling your own shots. You are the master, and money is the servant. You control IT instead of the other way around.
What would you rather have?
Doing what your parents taught you is only half the equation for achieving financial independence. They only gave you the answers to half the test. You may pass, but you won’t excel.
Let’s compare what your parents taught you vs. what you need to know to succeed truly:
Here’s what your Parents Taught. Everything your parents taught revolved around the idea of having a nest egg. The primary purpose of the nest egg was to provide you with a reserve in an emergency. If you never have an emergency, great! You’ll have the nest egg for when you retire.
Here are the main points of your parents’ financial plan:
- Nest Egg = Wealth.
- Save as much from earnings as you can to build your nest egg.
- Come up with a savings plan.
- Live below your means.
- Stay out of debt and pay for everything with cash.
- Only YOU can make YOU wealthy.
The Problem with what Your Parents Taught You. The problem with what your parents taught you is that savings will not make you wealthy. It’s not going to give you financial independence – the ability to walk away from your job if you wish. Achieving financial independence takes much more than savings.
Counterpoints to what Your Parents Taught. Here are my counterpoints in Bold below.
- Nest Egg = Wealth. Financial Independence = Wealth. A nest egg is not wealth. The wealthy don’t worry about money. That takes much more than a nest egg that sits there. Putting money under a mattress, in a savings account, or even the best-paying Money Market or CD accounts will not make you rich. Saving alone won’t even keep up with inflation diminishing your buying power as a result.
- Save as much from earnings as you can to build your nest egg. Focus on creating additional income streams, not just saving from the one income stream you have. Financial independence is about unleashing your financial potential. Banking your earnings is a limiting strategy since your earnings are limited to the hours in a day.
The wealthy use their savings to put their money to work. They give it a much higher purpose than just sitting in a savings account and doing nothing – waiting around for a rainy day or retirement. The wealthy put their money to work. They create income streams outside of their jobs through passive investments. Passive investments put their money to work 24-7. Putting your money to work makes money your servant instead of the other way around. If you don’t find a way to increase your income streams through passive investments, you will always work for your money.
- Come up with a savings plan. Come up with a wealth plan. Come up with a plan for your savings. The more important question to ask yourself isn’t how much you can save but what you can do with those savings? How can you grow your capital?
The wealthy leverage the power of compounding by seeking out passive investments that cash flow and reinvesting that income to grow their stakes in their current assets or invest in other assets. The ideal investment is one that cash flows while appreciating over time.
- Live Below Your Means. Don’t settle with living below your means. Life is for living. Ordering a salad instead of a filet mignon to save money is not living. Living is eating what you want, spending time how you want, and going where you want without anyone or anything holding you back. Your goal should be to create the type of wealth where you and multiple generations that come after you will never have to worry about money again.
- Stay out of debt and pay for everything with cash. Not all debt is bad. Debt can be leveraged for good when it creates multiple income streams that more than compensate for any interest expenses. Investing in multiple real assets or businesses with debt instead of a single asset without its financial advantages. It is a strategy the wealthy have used for decades to build multi-generational wealth.
- Only YOU Can Make YOU Wealthy. Don’t be afraid to leverage the expertise of others. If you don’t learn to rely on the knowledge and expertise of experienced investors, you will never be able to break away from your job. Investing passively means handing over your money and giving up control. The key is your control over who you decide to hand your money over to. Educate yourself so that you can find experts whose investment objectives align with yours. Only by trusting others will you be able to create multiple streams of income.
Your parents taught you about saving is not to be discounted, but it’s only half the equation for achieving financial freedom – freedom from the grind and punching a clock.
If all you’re interested in is a nest egg to keep you off the street, then, by all means, follow your parents’ advice. But, if you want to spend more time with your kids or grandkids, go on dream vacations, give back to society, you need to modify your savings plan into a wealth plan.
Only by growing your savings through the power of compounding will you be able to achieve financial independence truly.
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.