Sometimes looking at the day-to-day idea of building great wealth and working toward financial freedom can seem daunting, difficult and demanding. Unexpected expenses, bills and the rising cost of living all conspire to reduce the chances of financial success.
In facing such challenges, it can seem easy just to put your head in the sand rather than face the uncomfortable challenge of examining where you are. However, other pressures creep in if you are a bit further along the financial journey. Why save when you deserve that holiday, car, or luxury you have worked so hard to get?
At BuildingOut, we believe that financial success is available to everyone willing to put in the time, work and consistency to build out from where you are to where you want to be. This is not necessarily easy, and it is not necessarily quick, but with the right education, action and consistency, it is achievable.
In a previous blog, we covered the 10-step path to wealth:
You must take these steps on the journey, getting to the next level as quickly as possible. Along the journey, different levels of education are needed as you increase through the levels. Here we discuss the four key levels of education needed along your financial journey.
1. Understanding financial basics
Personal finance, like other topics such as medicine, law etc., has its language. While it is not necessary to understand the entire language, it is important to understand basic concepts. The difference between interest rates and inflation, why we have inflation, and the time value of money are basic ideas that it is important to understand.
At this level, it is also important to understand how basic financial products work, the difference between saving and investing, and how some financial institutions, such as banks, make money.
A key distinction here is around the use of language. Understanding different terms is a key starting point when improving your financial education. There are many relatively cheap financial dictionaries out there. One of the more interesting books is:
Alternatively, you could look on free sites such as:
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The great thing about this stage is you can drastically improve your financial education for little or no money. All you need is time and consistency.
2. Understanding day-to-day spending
If you are like most of the population, you will have a very loose or no monthly budget. This leaves you open to the whims of spending and a lack of control regarding finances daily.
The uncomfortable truth is a key way (but not the only way) to build wealth over the long term is to earn more than you spend and invest the difference over time.
But why do I need education at this stage? Surely this is having a spreadsheet and working out income vs expenses.
Not all education is purely about financial topics. Psychology plays a key part in this level of education. Self-awareness is key. Where do you spend money impulsively? What are your triggers for spending? What are your values around money? Does your partner share your views and values on money?
A great book that looks into this is:
If your partner is at different ends of the spectrum from you in terms of financial values, then a great podcast to listen to is Ramit Sethi's 'I Will Teach You To Be Rich
3. Understanding asset building
This level of education is where most people think they need to start. Omitting the first two stages of financial basic and understanding their income vs expenses. It is the more exciting phase where you can start to think about the pathway to wealth.
But without the basics, getting involved immediately at this stage increases your risk. It leaves you open to the influence of more highly educated investors and people operating in the financial space.
Once you have mastered the basics and reached this level of education, the options can seem overwhelming. Bitcoin, shares, property, VCTs, EIS, and Commodities can all be options, and it can be overwhelming and difficult to know where to start.
Operating in any asset class requires a higher education level, and it is important to understand that no one has expertise in all of them. So, where do you start?
I would always start with something you are interested in. If you like property or real estate, start there. If you like analysing businesses and looking at market trends, look at shares, or if you are a Fintech geek, learn more about cryptocurrency and NFTs.
At this stage, I would always recommend trying to fast-track your learning by either attending a course, finding a mentor, or working with a financial advisor in the sector you're interested in. Ensure that the person you are dealing with is accredited and regulated by their appropriate bodies. This may seem expensive initially; however, using people who are further along the journey than you and who have already learnt the lessons can be a fast-track way of leveraging their time to improve your financial outcomes.
4. Understand how to protect and hand over your wealth
Once you have learned the financial basics, mastered your day-to-day spending, and started building real wealth in terms of your net worth, it is important to understand the risks.
Death or illness of a spouse, inheritance tax or inability to work can all impact your plan to build wealth or look after your family.
In terms of education, understanding how financial protection products such as level or decreasing term life insurance, FIB plans, and critical illness all require another level of education.
In addition, looking forward and understanding how inheritance may affect you in the future and planning for this now (Trusts, gifting etc.) can greatly impact how much money can be handed to your next of kin.
My take on this is that I am less interested in this type of detail. I am far more interested in asset building and increasing passive income.
Again at this stage, if you enjoy this, go deep and learn. If not, then I would outsource to a financial adviser on this, with the normal caveats, they are properly regulated, come with recommendations and have a good track record of looking after clients.
Actionable steps
- Improve your financial literacy by looking up terms regularly in a financial dictionary or website such as Investopedia
- Take an hour to think about your financial values -are you a saver or a spender? Do you have emotional triggers when spending? Do you have a clear plan?
- Think about what asset class or classes interest you. How could you get better educated in this area? Books, Networking, Courses, Youtube? Take one small action to understand your favourite asset class, and do it today.
- Have you considered protecting your downside if you are further along your financial journey? Do you have life insurance? Is inheritance tax going to be an issue for you in the future? Is this something that interests you, or should you outsource the thinking?
If you enjoyed this or want to know about making, keeping and growing your money:
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- Take one step today using the actionable steps above
Good luck on your journey!
Diarmaid
