You’ve been lied to.
When you were in school, they told you these different subjects would be vital for your future. But for a lot of us, few really mattered at all.
Think about it…
When was the last time you:
This tweet sums it up well:
The school system should prepare students for life.
And part of that preparation should include teaching financial literacy.
Whether you’re just starting out or decades into your career, money is on our minds every single day.
Whether or not money can buy happiness is debatable, but without enough of it, we’re miserable. A lack of money is a major stressor, a factor in many divorces, and a reason to envy those who have it.
But don’t worry, my financial advice for young adults is not going to be about frugality. You won’t hear bland advice like “save more money.”
In this post, you’ll learn:
Stick with me.
And by the end of this post, you’ll have a deeper understanding of personal finance and how to build wealth than most people on the planet.
There are several ways you can use your money to make more money:
The last one is counterintuitive.
Money isn’t the most valuable commodity. Time is. Wealthy people focus on getting their time back above all else and use their money to do it.
Some examples:
It’s hard to embrace this type of thinking because it runs counter to how most people live their lives.
Take the never cooking example. For some reason, it hits a deep nerve if you tell people cooking is a waste of time, but think about it this way.
Say your skills are so profitable you value your time at $300/hr.
If you take an hour to cook a meal, eat it, and clean up after yourself, you will have spent one hour that could’ve gone toward making more money, so now you’re at -$300 minus whatever you spent on the food itself—say $10. So you’re now at $-310.
Now, let’s say that you spent more money on food but got your time back. You spend $20 on a meal that’s ready to eat, you get your hour back, and you can use that hour to make money. Now you’re at $280 in profit, even though the pre-prepped meal was more “expensive.”
There are many such cases where poor and middle-class people overvalue saving money instead of thinking about saving time, which, counterintuitively, can help you make more money.
Related:
This next point is similar to the first, but it’s important enough to stand on its own.
Wealthy people buy luxury items with money they get from assets. Middle-class people buy luxury items with income and go into debt to afford them.
Example:
The first person puts themselves in the hole to get the car.
The second person buys the new car if, and only if, it won’t put a serious dent in their financial situation because they’re using excess profits from passive income to buy their luxuries.
The first person tries to look rich.
The second person is rich.
This is a lesson in delayed gratification. There’s nothing wrong with wanting nice things. But if you’re smart, you’ll acquire them the right way. Like rich people do. Don’t turn yourself into an indentured servant just to buy nice things.
Uncle Sam is always going to want a piece.
If you’re not careful, taxes can take a huge chunk of your earnings, especially if you’re a high-income earner.
Say you’re a professional like a doctor or a lawyer. You might make a couple hundred grand a year, but if you’re in the top tax bracket, you’ll lose almost half of your money to income taxes. No bueno.
This is why becoming an entrepreneur and an investor is so powerful. You can benefit from several tax advantages if you’re in business for yourself and put your money to work.
These are just a few examples of tax loopholes you can use. Learning about taxes is boring, but it makes a huge difference in the amount of money you can keep in a lifetime.
Related:
Pop quiz.
Say you have $1,000.
You put it into an investment account with a 10% annual return.
How long will it take for you to double your money?
The answer: about 7 years.
You can figure this out using the rule of 72. Take the number 72 and divide it by your annual rate of return, and you’ll know roughly how long it will take to double your money.
In general, most people have a poor understanding of how compounding works. And how interest rates work when it comes to debt.
If you have a maxed credit card and you only pay the minimum balance on it, you’ll essentially continue paying that card off forever. By the time you pay it off, you’ll have spent triple or quadruple the amount you owed.
Interest rates, annual returns, debt schedules, and amortization tables are extremely counterintuitive. The best way to learn is by playing around with some online calculators that can show future projections of 1) how your investments will grow and 2) how much money you’ll end up spending based on how fast you pay off your debts.
Here are some you can play around with:
There will likely come a moment in your career when you suddenly find yourself without a job.
Maybe you have to quit because of a toxic work environment.
Maybe you’ll be let go when the company goes under.
Maybe you get fired.
No matter what the cause, it’s not going to be pleasant—but it will be a lot less stressful if you’ve diversified your income streams.
“Diversifying income streams” means you have more than one way of earning money at any given time.
A few examples:
These kinds of situations offer security, because if something unexpected happens with one revenue stream, you can rely on the income from the others until you replace what was lost.
If you’re currently reliant on a single source of income, brainstorm what else you might do to bring in another revenue stream.
It doesn’t have to be something extravagant or extremely time-consuming. Think about jobs you’ve always wanted to try. Have you dreamed of being a bartender? Do you want to try your hand at freelance writing? Now’s the time to experiment, so you can build up a new revenue stream that you enjoy, one that can support you in unexpected situations.
This piece of financial advice has less to do with the actions themselves and more with mindset. If you want to become successful financially, you have to think differently than most people do.
You have to change your beliefs about money, what it can do for you, and the role it can play in your life. Most people suffer financially because they have deeply limiting beliefs and negative scripts about money.
Things like:
Related:
Debt happens.
Student loans, medical bills, credit cards—all of these can contribute to serious debt that can quickly become overwhelming.
When you’re facing debt, the instinct may be to stick your head in the sand and hope it goes away.
Perhaps you only make the minimum payments, or worse, you have missed payments and are now in delinquency.
The problem is, the deeper you sink into debt, the harder it is to get out. Debt accumulates interest until you’re paying off very little of the amount you owe every time you send in money.
Falling behind on debt can also damage your credit score, making it harder to do things like rent apartments or take out loans with good interest rates.
Paying off your debt doesn’t have to be the top priority for you, financially. In some cases, when you have very low interest rates, it might make sense to make minimum payments and invest your money elsewhere.
This all can get complicated quickly, which is why we have an excellent guide to paying off student loan debt that you should check out if you’re dealing with debt woes.
Everyone’s looking for the next big thing. Crypto, NFTs, meme stocks, AI startups—there’s always a new trend promising to make you rich quick.
But here’s what wealthy people understand: Real wealth comes from solving real problems.
Some examples to show what I mean:
Instead of trying to figure out what the next big financial trend is, focus on picking up high-income skills that are likely to earn you money in the long-term, no matter what the next trend is.
That is not to say that you should never take risks or invest in any trends that you think have a high likelihood of success. But you should only be taking such risks with some of your investments and you should rely on more stable, predictable methods of earning and saving money in most cases.
These personal finance tips are about building wealth.
You are capable of creating a financial situation that alleviates your stress, gives you freedom, and allows you to enjoy the fruits of your success without feeling like you have to trade your life for shackles.
Stop thinking about money in ways that hold you back.
Start thinking like the wealthy and watch your bank account grow like crazy.
