The 4 areas of financial IQ you should focus on
The 4 things you need to learn to become an investing expert
When a friend recommends a good book, I either head to Amazon and add it to my Wish list and make a mental note to buy and read it, or download an ebook, read reviews and leave it on my virtual bookshelf for later. I end up reading most of them, reading happens to be one of my superpowers.
All bookies have a unique challenge; a never-ending to-read list. It can be quite daunting and sometimes we have to make peace with the fact that we will never read all the books in the world; however much we wish to. This is the part where I will add that my dream job is to be paid loads of money to read-just in case the universe is listening!
One of the books that was recommended to me early last year was Seth Godin’s Tribes. I remember my pal Ituu telling me that it’s a quick easy read so I should read it asap. Well, I finally got to read half of it in the first week of January this year. I don’t wish that I could have read it earlier because when I finally did, I was in the right mental state to take action.
I had been debating for a while about starting this money series. The thought that always won during those internal debates was ‘What if you make a fool of yourself and give people the wrong financial guidelines?’ And so I kept on procrastinating. As I was procrastinating on the writing, I was still working on my financial wellness through educating myself, paying off debt, saving and embracing the bliss that comes with owning less rubbish by practising minimalism.
Tribes by Seth Godin is a small book. 83 pages. By the time I was halfway, I had made up my mind to start documenting this journey. For myself, and the tribe out there who are eager to make a difference in their personal finance. Here’s are the quotes from the book that inspired me to start;
The cost of being wrong is less than the cost of doing nothing. — Seth Godin
Change isn’t made by asking for permission. Change is made by asking for permission, later. — Seth Godin
Perfect is an illusion that was created to maintain the status quo. — Seth Godin
I didn’t finish reading the book in January. I started writing this series on a weekly basis, then got sucked into rereading the money management notes I had made over the years and rereading personal finance books because…I wanted to provide some legit value.
I got to read the other half earlier this week because I now have time to read all the unfinished books.
Here’s an excerpt of one of the chapters:
The Difference Between Things That Happen To You And The Things You Do
In the old model, things happened to you at work. Factories opened, people were hired. Bosses gave instructions. You got transferred. There were layoffs. You got promoted. Factories closed.
Leaders, on the other hand, don’t have things happen to them. They do things.
In the middle of the mortgage crisis, I spent some time with a few thousand Realtors at their annual convention. What I discovered might surprise you. The group was completely split. Some of the Realtors saw what the media, Bear Stearns, the banks, and the public were doing to them and to their hard-won careers. They were angry (even bitter) about the end of a long run of increasing housing prices, and they were scared about their futures. These Realtors didn’t know how they were going to cope with what had happened. They wanted to manage their careers, but the change was making it impossible.
The other Realtors were palpably excited. They were eager to get to work. Some 10 or 20 per cent of the Realtors were going to quit, and the leaders, the ones who were going to stay, realized that this change was a very good thing. The same way soldiers realize that it’s war that makes generals, these brokers were ready and motivated to use change as a chance to really wreak some havoc on the status quo. They saw the change in the outside world as an opportunity, a chance for them to dramatically increase their business.
They knew that the current problems wouldn’t last forever, and they understood that the problems would wipe out the opportunity seekers, leaving the professionals standing.
As I shared in last week’s article on Of Financial Insecurities & Enlightened Greed, this COVID-19 pandemic is causing havoc in our lives more so our finances.
Whether you have thought about it or not, money is still being made during this period by those who sell medicine, ventilators, foodstuff, telecom companies, and all other businesses with an inverse relationship to a crisis. As much as it’s being lost by most, it’s being transferred to some. Immorally or not. Like a friend shared that their local Kenyan supermarket is charging them $2.5 for grocery deliveries…sigh
This isn’t the last crisis that will happen to humankind. On a personal level, we undergo many mini-crises for example when we’re stuck in debt. Instead of being stuck in anxiety, which could have easily happened to me since I live alone and have no one to physically hold on to, I decided that I’d come out of this crisis smarter and maybe with more money.
Step 1: I printed my life goal which is a quote from Naval Ravikannt.
A calm mind, a fit body, and a house full of love.
Step 2: I made a list of productive habits guided by the quote that I wanted to maintain during this period.
A friend said that since most of us will be financially vulnerable when life goes back to normal, we will see many more Ponzi schemes promising us quick riches. Without the right financial principles, we will fall for it.
Step 3: Created a daily habit tracker.
Every day I cross out (with a screaming pink highlighter to celebrate myself) all activities I have done.
This isn’t a productivity contest, we’re stuck in a pandemic and all we’re trying to do is survive. But YOU, are the best judge of whether you can go an extra mile and come out of this with better financial strategies or principles. I’m sure you’ve learnt that cash money is the most faithful friend at the moment. That building an emergency fund should be the first goal as soon as we hit the ground running.
As you keep expenses low, here’s a list of 4 financial IQ areas that you should learn during this lockdown.
Understand that real wealth is portable; it’s knowledge. — The Jewish Phenomenon.
1. Accounting — Being able to read financial statements
Can you explain where all your money goes after you get paid? Learning basic accounting will make you less intimidated about your finances. With this skill, you will learn how to read your bank statements, read statements from companies you invest with, learn how to create a budget, and how to effectively track your expenses.
Before enrolling for an accounting course, I used to have a hard time matching my expenditure with the money left in my checking and savings accounts. I learnt the ‘Bank Reconciliations’ concept and my life hasn’t been the same since!
The Math in accounting is pretty basic. It’s basically subtraction, addition and division.
Since Math is not my superpower, I have been very patient with myself while taking the course. I call friends who understand accounting and ask them to explain to me like a child. I laugh at myself now when I replay the 20+ voice notes that my bestie sent me trying to explain the difference between debits and credits, and why the damn things mean the complete opposite on a bank statement. But the beautiful thing about accounting is that once you understand the concept, that’s it! There’s no going back! When you know, you know!
There’s also a lot of pride that comes with being able to have conversations with people in the accounting department at work. You will understand what they’re talking about, and in meetings, you won’t have to just sit and listen. Make an impression by participation in the discussion while using the language of business. Shine!
There will always be a scandal in the business world. How many times have you heard people say ‘the numbers were cooked’ or manipulated? Instead of solely relying on the media’s biased opinions, learn basic accounting. You will understand what went wrong, why it matters and you’ll be in a position to explain it to your friends while feeling like a genius.
With accounting knowledge, it’s also harder for people to rip you off! You understand how businesses work.
There are many platforms that are offering free online courses during this time. I am taking my course on Haystackafrica.com. This is a paid course, $45. I opted for the paid option because I tend to value something more when we pay for it.
To get there, we have to buy our freedom. The only way to do that is through investing.
PS: I’d highly recommend small business owners to take the course on Haystack.
2. Investing — The Science of making money
I’m thriving during this working from home period. No morning alarms-sleeping in the morning is my ultimate sign of making it in life! Working when I’m most productive-I’m a night owl! Been waking up past midday and sleeping at 4 am (please don’t be a snitch if you know my boss or workmates!) Is this how the wealthy live? I. WANT. IN!.
You can start this journey by reading two of my previous articles on the same.
The Four Golden Rules of Investment Management
An easy Four-Stage Investment Management Model Explained
You can get a loan for just about anything. But you can’t get a loan for retirement. — Robert Farrington.
3. Marketing/ Markets — Buyer behaviours
Marketing tactics are so well researched that shoppers end up valuing items as opposed to cash as soon as they enter certain stores. Still wondering why so many restaurants in town invest in a perfect ambience? Because smells and sounds make you careless with your cash.
How many times have you bought something you don’t need just because it’s on sale? The marketing and advertising industry is always working harder to employ more tricks to make sure they get you spending more. They don’t simply design your experience as a consumer, they engineer it.
Every time you search for an item online, you will be bombarded with ads for similar items for weeks.
I read about a store in the USA that would send free magazines to women who had reached ‘childbearing age’. They knew their age through the data they had collected from their shoppers over time. These magazines were a catalogue of all their products but the store would send subliminal messages by placing items that an expectant mom or new mom would need. This included free delivery for moms. Their sales for baby items rose by 30% in a year.
Recommended read: Paco Underhill’s Why We Buy-The Science of Shopping.
Life Lesson: If something costs $1000 and it’s on sale for $750 and you decide to buy it, you did not save $250.You spent $750.
4. The Law — For Tax advantages
There’s a reason they say ignorance is bliss. I used to think the VAT on ETR (Electronic Tax Register) receipts is revenue for companies. Till I did a class on taxes and shock on me! My bestie still laughs at me about that to date.
I have a friend who reports most of his personal expenses as his company expenditure. For these purchases, he doesn’t incur VAT. This is one of the greatest advantages of owning a company.
Ignorance is bad, but inaction is worse. It’s also important to remember that the system is designed to make sure you don’t know these things. That’s why they don’t teach us about finances and taxes in school.
Just so it is with the sons of men. Give them a choice of gold and wisdom-what will they do? Ignore the wisdom and waste the gold. On the morrow they will wail because they have no more gold. — George S.Clason, The Richest Man in Babylon
Invest in financial knowledge before investing in financial assets. Skipping this step will cost you more in the long run, the market will derive its own fees from your investment.