What's one money lesson poor people learn too late, and rich people understand early?

The value of compound interest.

The earlier you start saving and investing, the more time you give your savings and investments to grow.

It goes without saying, the more of your income you are able to save and invest, the better.

Rather than how much you earn, it is your savings rate that will determine your future financial security.

Financial literacy is important.

If you are earning very little, financial literacy is important - in order to to give yourself the best chance of future financial security.

If you are earning a lot, financial literacy is important, so you don’t lose money making bad choices, or just lose money by sitting on it, and not making the right tax and investing choices.

Through financial literacy, even a person earning a very ordinary income, can improve their financial prospects, substantially.

Through financial literacy, a person earning a lot can multiply their money and assets, and make sure that they learn something from every decision which turns out to be, a less than optimal decision.

Financial literacy will teach you when to cut your losses, and when to use yoga to hang in there.

The earlier you learn about some things, the better.

You won’t take poor risks with your money.

You will have more control over your spending.

You won’t ignore inflation, and see your savings steadily lose value, by leaving your money in a checking account, or under a mattress.

You won’t underinsure your assets.

You won’t underutilize your assets, for example, sitting with an empty second home, that you could be getting a rental income from.

Rich people, and those who think like them, don’t make those mistakes.

To avoid those mistakes, you have to make sure you understand all of the following:

Careers and income projections

Fundamentals of setting up a business, so you can consider a business on the side, or consider a business as your main source of your income

Budgeting and expense tracking

Saving and investing through stocks, and fixed income instruments, such as cds, high yield savings, bonds, with a small percentage invested in commodities, such as gold

Saving through different tax sheltered accounts such as - traditional iras, health saving accounts, 401ks, 529s, roth iras - so that your money can grow and compound, tax free

All that is involved in tax calculations - federal and state income taxes, tax withholdings, tax brackets, tax deductions, and the rules for withdrawing money from tax sheltered accounts.

All the different types of insurance - health insurance, auto insurance, house insurance, renters insurance, liability insurance, umbrella insurance, etc.

All the different forms of credit - credit cards, installment credit, auto and home loans, business credit, and how to use credit to your advantage; it includes understanding how credit scores are compiled by credit agencies, and more

Even if you have just started your career, you should think like a rich person, by giving yourself these 5 aims…

Aim to earn money.

Aim to use your earned money to make more money - through a business, or through an investment in assets.

Aim to protect your money and assets - through insurance, and sound tax strategies.

Aim to use debt strategically.

Aim to use your money not just to meet your expenses, or to finance an ever-inflating lifestyle, but to grow your nest egg.

Plan on escaping the financial trap of earn-spend, earn-spend.

Take steps towards that freedom, by becoming passionate about managing money, and learning everything you need to learn about how to manage money.

There is plenty of content out there, but you can start by reading these prior articles of mine:

Minoo Jha

· 7y

I'm 35. How much money should I have saved for retirement?

Hi, You asked, I'm 35. How much money should I have saved for retirement? For every 10,000 of retirement expenses, you should have $250,000. So if you expect your expenses in retirement to be $20,000 per year, you should save $500,000. If you expect your expenses to be $30,000 per year, you should save $750,000. If you expect your expenses to be $40,000 per year, you should save $1M. And so on. You should subtract the annual amount you expect to get from Social Security before you do the calculation, if you expect to meet your retirement expenses from a combination of Social Security income and your savings. If your annual retirement expenses are $50,000, and you expect to get $18,000 in Social Security benefits annually, subtract $18K from $50K. $32K is what is left, which you will need to meet from your retirement savings. Divide 32K by 4% = $800,000. $You will need $800,000 to meet $32K of annual retirement expenses. Here are some tips to get you there: 1. Avoid buying more house than you need 2. Don’t take out a second mortgage for a non-essential expense 3. Don’t pay the minimum on your credit cards 4. Don’t let revolving debt grow - have none of it if carried over if possible 5. Build up an emergency cushion 6. Budget so you have money left over every month 7. Avoid buying new cars 8. Avoid expensive haircuts, expensive meals, expensive clothes, expensive vacations, expensive private schools, expensive hobbies 9. Save for retirement through 401Ks or IRAs 10. If you are married, live on one income. It’s not impossible One last tip… Steep yourself in the advice and inspiration of leading lights of the FIRE (Financial Independence Retire Early) movement such as Mr. Money Mustache and Financial Mentor. And if there is a debt problem involved, sign up for Dave Ramsey’s Financial Peace University. Do this and maybe you won’t have to worry about Social Security. You can retire even ahead of the Social Security age because of being so smart with managing your money and your savings. Even if you have nothing saved at age 35, using the strategies above, you can get to the goal of covering your expenses with your assets, and even retire early. Just depends on how much of your paycheck you are willing to save - see Mr. Money Mustache’s calculator.

Minoo Jha

· 7y

What are some things poor and middle class people don’t know about financial literacy?

Hi, You asked, What are some things poor and middle class people don’t know about financial literacy? Here are some things the wealthy know, that many, who are poor or middle class, are unaware of: 1. The more you know the tax code, the better your chances of getting wealthy. 2. Income is not the determinant of wealth. Assets are. 3. The intellectual value of the work you do does not matter. The financial value is what counts. Wayne Huizenga started with buying and driving a garbage truck. 4. Money is thought of as capital to invest, not just as cash to earn and burn. 5. The wealthy know that people make money, but money makes more money. 6. The wealthy know risk is unavoidable, but risk has to be managed. 7. Failures are to be expected and learned from. 8. The wealthy know to put The Law of Numbers on their side. 9. The wealthy focus on value rather than price. 10. You won’t draw a blank if you talk to the wealthy about financial instruments.

Minoo Jha

· 7y

How do I get out of debt?

Hi, You asked, How can you avoid going into debt? Here are some tips… 1. Avoid buying more house than you need 2. Don’t take out a second mortgage for a non-essential expense 3. Don’t pay the minimum on your credit cards 4. Don’t let revolving debt grow - have none of it if carried over if possible 5. Build up an emergency cushion 6. Budget so you have money left over every month 7. Avoid buying new cars 8. Avoid expensive haircuts, expensive meals, expensive clothes, expensive vacations, expensive private schools, expensive hobbies 9. Save for retirement through 401Ks or IRAs 10. Live on one income. It’s not impossible. Want to get it right from day one? Steep yourself in advice and inspiration from leading lights of the FIRE (Financial Independence Retire Early) movement such as Mr. Money Mustache and Financial Mentor. And if either one of you is bringing a debt problem into the marriage, you should think about signing up for Dave Ramsey’s Financial Peace University.

Minoo Jha

· 7y

Could minimalism be the key to financial freedom?

Hi, You asked, Could minimalism be the key to financial freedom? Yes, short of living in a tent, I am comfortably off because of living a minimalist life. Here’s how I did it… I internalized Suze Orman. I started meditating. (The book “How God Changes Your Brain” gave me both my motivation and my technique). I stopped being a nervous Nellie about my future, accepting that the future was hamarey bas ki baat nahi (Hindi for “beyond my control/capacity/competence”). I channeled stories such as the Farid ud-Din Attar story about King Mahmud and the Beans. I started tracking my expenses. I found that knowing my average monthly expenditure was within a certain range made me oodles less anxious. I searched for and read books on downshifting like Your Money or Your Life. I found out how simply some folks were living (friends and relatives in India) and how happy and content they were. It helped me develop perspective. I realized that things are not always what they seem. That people who looked better off than me with expensive cars, nice houses, the latest gadgets and who went on fabulous holidays might actually be reeling in debt and have negative net worth. I also observed how many people who are better off than me fret more than me. This is because though they are rich in externals (the visible accoutrements of a successful life), they are poor in internals (their internal life is messy). Peace and contentment can’t be bought. It is a gift you give yourself. You can be at peace even living in a crowded noisy apartment complex, whereas you can be in a state of turmoil even in the quietest most luxurious and secluded waterfront mansion. I know this sounds like a “sour grapes” rationalization, but I really do fret less than many people who are materially far better off than me. I discovered “Asteya” and made it one of my goals. Asteya is the discipline of taking from the world only what you need – without greed, excess, or wastage. I realized that producing something (expression) was more satisfying than owning anything (consumption). I observed that more stuff made me less happy rather than more happy – giving me more house cleaning, maintenance and security to worry about. And finally, I observed what made me happy. They were not things, but experiences. A good conversation. A good read. A walk or talk with a friend. A simple hearty meal. A guest post (hint,hint). A satisfying workout at the gym. Giving and receiving appreciation. Learning something new. My meditations. A fear or weakness conquered. An intellectual puzzle solved. A physical challenge met. And realizing this, I was able to cheerfully and contentedly declare “I’m good!”

Do this, until you feel the earn-spend earn-spend chains, come off.

When they are off, give yourself a pat on the back.

You took woulda, coulda, shoulda out of your vocabulary.

Taking woulda, coulda, shoulda out of your vocabulary, has put you in the club of comfortably well-off people.

To go back to the beginning of this answer, it all starts with understanding the value of compounding when it comes to money.