Have you ever heard of this concept? Do you know what it means? Inflation shows you the purchasing power of money. The more inflation rises, the less purchasing power your money has.
In other words, inflation tells you how much the prices of goods and services in your country rise on average. So inflation of 10% means that the prices of products have risen, on average, during the year by 10%.
2. Compound interest
Compound interest is listed as the eighth wonder. And it can be said that he is responsible for the wealth of many millionaires.
What compound interest does is multiply money over time. And the more time passes, the more chances it has to grow.
What is this growth due to? The interest generated by your invested capital becomes part of your capital, so the interest will be higher each time.
If you invest $10 at a rate of 10% per year, the following year you will have a profit of $11. When reinvested, your capital will no longer be 10 dollars, but 11 dollars, which will leave you an annual profit of 12.1 dollars, and so on.
To take advantage of compound interest with your money, start investing as soon as possible. The faster you do it, the more time your capital will have to multiply. For example, you can invest in the stock market and let your money follow the market. The key is that you don’t take your money out of there and have a long-term vision.
3. Invest from a young age
As I mentioned in the previous point, you must invest from a young age. On the one hand, you will be able to take advantage of compound interest and second, you will develop a fundamental long-term mindset to build your wealth.
Now, if you have never invested, this does not mean that it is no longer useful or that you missed your opportunity. Although it is possible that your money will not have as much time to grow, without a doubt, it is preferable to start investing what you have today, and not continue postponing this important decision.
Many people believe that the formula to becoming millionaires is some secret trick or a method that is only available to a few. They are very wrong.
The formula has always been clear and revealed: if you want to build wealth you must save, spend less than you earn, and invest your money in such a way that it grows for you, regardless of your work, and take advantage of the benefits of interest. composed over the years.
4. Good debt vs. bad debt
Not all debt is bad there is a certain type of debt that allows you to leverage yourself and have financial growth.
Understanding the differences between both types of debt is one of those money lessons that they don’t teach you in school, and that is essential for good financial health.
It consists of that debt that you incur to solve short-term needs or cravings, which do not generate future profits or returns, and whose value depreciates.
All the emotional purchases, cravings, and things you buy because you don’t have the money available, and which you access through debt, constitute bad debt.
Unlike bad debt, this type of debt allows you to have capital that will be used to generate additional income.
This is the case of debts to investing in a project, for your education or training, or to start a business, among others.
These debts, beyond destroying value, are doing is capitalizing on you to invest that money in a project, whose profitability will generate enough money to cover the interest on your debt and keep a surplus.
Good debt is how financially intelligent people choose to work with other people’s money.
5. Currency devaluation
If you live in Latin America, you must understand this lesson about money that is not usually taught in school.
For a couple of years, the economies in Latin America have been presenting a considerable devaluation of their currencies against other stronger currencies, such as the dollar and the euro.
What does this mean? Think of this concept as the amount of local money you have to hand over to receive a dollar or a euro.
The more you have to give, this means the more devalued your currency is. I mean, it’s worthless.
And what does this have to do with you? Basically that your acquisition capacity is reduced. If you want to take a trip to the United States or any other country, you will need dollars. And for this, you will have to give more local money.
Unfortunately, this phenomenon of devaluation has been severely punishing countries like Nigeria, Kenya, South Africa, Colombia, Peru, Argentina, and Mexico. So, to counteract this, I suggest you start saving in dollars.
The benefits are many since you will have your money in a strong currency.
As you can see, that is why it is so important to save in a strong currency, because you will protect yourself against inflation, and the devaluation of your country, and it will be easier to change to other currencies, compared to your local currency.
Cryptocurrencies are here to stay. And I’m not talking about methods to become millionaires overnight, but a technology that is changing the world economy.
From the blockchain that seeks greater security in capital transactions worldwide, with greater privacy and without depending on governments, the world economy is being completely transformed.
It is mandatory to learn how these cryptocurrencies work, how many exist, what are the different investment options you have with these digital assets, and how to invest in them.
This goes beyond Bitcoin, as there are hundreds of cryptocurrencies, investment platforms, and wallets to store your virtual currencies.
7. Credit cards
A large percentage of the country’s economy (no matter what it is) is moved by credit, financing, and consumption of people.
Within this reality, credit cards play a fundamental role; which, unfortunately, we were never taught to manage or manage during school.
The first thing to clarify is that these plastics are not bad as such. The problem is the management we give it and the interpretation it has for us.
If for you, a credit card is an extension of your ability to pay, and you use it to buy things for which you do not have the money, this will be a big financial problem.
If, on the contrary, you understand that these plastics finance you between 30 and 45 days and that if you make smart purchases for which you can pay, these plastics offer you great benefits.
Among some of these we have:
- Miles system to redeem on trips and purchases
- Insurance that protects purchases and trips
- They show the bank your ability to pay (improve credit history)
- They offer special discounts (by this I do not mean spending to spend).
So, it’s time to understand how these credit cards work and start using them taking into account these money lessons that are essential for building financial freedom.
While this is one of those money lessons they don’t teach you in school, it’s time to learn how to use these plastics to your advantage.
8. Invest for the long term
There is a Chinese proverb that says “the best time to plant a tree was 20 years ago, the second best time is now”. This truth applies to your investments.
Many times we feel guilty for not having started investing our money much sooner, we think that it is too late for us and that we will not achieve the expected results.
However, the best time to invest your money is now. You must start today and have a long-term investment horizon.
When you think long term, you stop reviewing daily fluctuations and focus on the value these investments add; In addition, you can open yourself to new investment possibilities whose profits take a little longer.
I am convinced that true wealth is achieved over time, thanks to compound interest, and the construction of assets that generate new sources of income.
Unfortunately, in school, they never taught us this lesson about money, and that is that we should focus on building assets that generate income, and not so much on thinking about short-term solutions that are not sustainable over time.
9. Credit history
Have you ever checked how your credit history? This is one of those money lessons that we are not taught in school, and it plays a fundamental role in our personal finances.
Knowing how our credit history is is key to understanding what image banks and financial institutions have of us.
If we have a good credit history, this means that we will be able to obtain credit more easily, we will be able to access new resources, and we will have a more beneficial relationship with these institutions.
What influences your credit history? There are many variables, the most prominent are:
- Payment of credit card debts
- Pay your mortgage loan installments on time
- Be clear about the payment and cut-off dates.
- not have too much debt
- Comply with your commitments with other entities (telephone service, purchases, home, among others)
- Not be a co-signer of other debts that do not belong to you.
- Not being reported in risk centers.
- Among other.
If you are one of those who thinks that there is no implication in not paying your debts on time, or worse yet, not paying them, you should check how your credit history so that you do not get surprises in the future.
10. Concept of frugality
Let me ask you a question, what image do you have of the richest men on the planet? In general, the vast majority assume that they are people with ostentatious habits, who waste their money and lead an expensive lifestyle.
However, the reality is different. And proof of this is the book The Millionaire Next Door, whose author demonstrates, through research and studies, how the vast majority of millionaires in the United States live.
The common factor found among people who have accumulated more than a million dollars is that they lead a frugal lifestyle; They are not interested in living on appearances and are more interested in making money work for them, instead of spending it on luxuries.
If you want to learn more about millionaires, I invite you to read the book by Thomas J. Stanley and second, to think about the following: truly rich men and women are not those who have the most, but what they need the least.
What is the use of earning a million dollars if you are spending twice as much? Learn to control your expenses and lead a frugal lifestyle, without a doubt this is one of the money lessons that we were not taught in school and that we should apply to our lives.
The importance of investing in your financial education
To conclude, I would like to invite you to start investing in your financial education; either through finance books, courses, articles on the Internet, audiobooks, advice, or any other resource you have at hand.
One of the worst mistakes of schools when it comes to money is that you have not made them believe that finances, and money management as such, only correspond to financial experts.
They have sold us the idea that it is a complex issue, that we need advice, and that we must delegate its management.
This is the reason why we never start investing money, we ask for credit cards without knowing how to handle them, and we end up paying interest and debts, due to financial ignorance.
If you want to avoid these economic problems, start studying on your own, understand how money works, understand the basic concepts of investment and take ownership of your current financial situation.
If you start today, you will have several tools at your hand to decide on the future, you will begin to see money as a means to achieve your goals, and you will understand the methods that exist to finally achieve your financial freedom.