“Knowledge is Power.”
I’m sure you’ve heard that phrase many times during the course of your life. But is knowledge really power? or is the right knowledge power?
I won’t go as far as saying that what you learnt during your school years was wrong or a waste of time, but in hindsight, school really didn’t prepare us for the real world, especially when it comes to anything remotely related to finance.
In the wise words of Jim Rohn, “formal education will make you a living, [but] self-education will make you a fortune.”
So, the question is what type of self-education does one need to survive in the real world? Instead of just hoping one day you’ll win the lotto, what should we learn about finances in order to become successful? In my opinion, there are 5 very important areas of finances that should be part of your self-education.
1. Your own Personal Finance
This is an absolute necessity. It is truly essential that we learn the general financial concepts such as budgeting, money management, debt, credit and savings. These everyday aspects of finances can overwhelm us unless we get the proper foundational education in this area. Having a good handle on your personal finances (your personal economy) is essential if you want to gain any form of financial success. A really good read when self educating on the basics of looking after your own personal finances, you can find here. Another great read on the golden rules of savings, you can find here.
2. Your Mindset
One of the most important aspects of our financial success is the way we think, especially with regards to money. Resources that delve into “millionaire minds” and “how the wealthy think” are important to reprogramming our minds for success. Regardless of what we do externally, success will elude us unless we set our internal compasses for success.
Our mindset is also really important when it comes to patience and living within, or below, your means. People who live how they WANT to live, when it comes to money, can get into a lot of trouble. If you’re patient; you will have more financial freedom in the long run.
3. Accounting and Financial Statements
“You have to understand accounting. It’s the language of business. Unless you are willing to put in the effort to learn accounting – how to read and interpret financial statements – you really shouldn’t select stocks yourself.” – Warren Buffet
Ultimately, you will want to stop having to work for your money and will want your money to work for you. That is investing and financial freedom. However, you need to crawl before you walk. This step in particular is basically a preparatory step for point #5, investing. You don’t have to go and get a degree in Accounting, but if you want to have financial freedom through knowledge, it is important to develop a general understanding of accounting and of how financial statements work.
4. Markets and Economics
Once you understand accounting, there is still one more preparatory step you will want to take before delving into investing, or becoming financially free (ish). You will want to develop a solid understanding of how the general market works. You will want to learn some basic economics. Again, you don’t have to “master” this and get an MBA or degree. You need to understand how markets affect investments and what impact certain changes in the market should and should not have on your investment decisions.
Now comes the fun part! You’ve laid the foundation and are ready to learn how to make your money work for you. Starting with a few resources that will give you a general understanding of investing as a whole. In other words, some straight-forward materials on stocks, bonds, real estate, etc
Learn some basic investing materials, so if you wish to utilise them in the future, you’re able to. Diversifying your portfolio is not a negative thing in the slightest.
In summary, self education is so important! However, the education we received in school is really not enough. To be financially independent, it is important that we learn the areas of finance that will have the biggest impact on our financial futures. Personal finance and mindset education will lay the foundation for general success. Accounting and economics will prepare the way for future planning and investing. Finally, education on investment will help you achieve success in this area and will help to minimise your losses. Overall, education is essential. But the right kind of education is necessary for your own financial freedom.