Four Essential Money Lessons
"The only source of knowledge is experience."
Albert Einstein might not have been thinking of finance when he said this, but it's a brutal truth.
As humans, we like to pass on our knowledge... to our children, grandchildren, friends... We try to help people we care about leapfrog the pain of experience. It's something I (Kim Iskyan) have done often here at Health & Wealth Bulletin – sharing my experiences and mistakes to help readers avoid problems I've had.
In an ideal world, we'd be able to transfer the insight of our experience to others, so that they don't have to suffer the consequences of learning it all for themselves. But unfortunately, we tend to learn best from our own experiences and mistakes.
Today, I want to share four money lessons that – in a perfect world – we'd save our loved ones from learning from the harsh teacher of experience.
1. Understand what money is... and what it isn't.
I've come to believe a few things about money...
It's a way of keeping score. But it's only one way of keeping score. Other things – like your relationships with the people who matter, your sense of inner satisfaction, and understanding your place in the universe – are, when you review the full sweep of your life in perspective, ultimately going to be a lot more important.
Money is a tool not an end in itself. It's a way of getting what you want – whether that's time, travel, space, or a diamond-encrusted chess set from the Gobi Desert. But if adding more zeros to your net worth is the end in itself – rather than a steppingstone to what really matters to you – you'd better think twice about your ultimate aims. After all, hearses don't have luggage racks.
Money means options. If you have money, the range of opportunities available to you – what you can do with your time – expands dramatically.
Conversely, less money equals fewer options. If you're struggling to make ends meet, your menu of opportunities is limited because you're focused on making rent or the car payment tomorrow. You can't choose what to do, because your money requirements are dictating to you what you have to do.
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2. Spend on things that matter.
My mother has always religiously checked prices. Whether it's for a gallon of milk or a flight to Johannesburg, she wants to get the best value for her money. And if that means getting last year's model, so be it.
However, when it came to education – and to spending on other things that mattered – no expense was spared. My sister and I went to the best schools we could get into – and we escaped (unlike many kids in the west) the millstone of student debt. And money spent on education can have a "multiplier effect" it will generate a return that's many times larger.
Spending on the here-and-now is easy... and our consumerist global culture encourages, and cultivates, that attitude. But my experience over time is that that's precisely the wrong approach.
3. Have patience.
It's easy – especially when you're younger – to crave instant gratification. But patience is one of the most underappreciated, and important, traits that you can instill in a child. Patience is the main ingredient of self-control... and its kissing cousin, delayed gratification – which is one of the best indicators of success later in life. (If you're not familiar with the Marshmallow Test and its implications, watch this.)
And chances are, if you don't have patience, you'll miss out on compounding, the most powerful force in finance – which is based on time and patience. (Compounding is the financial phenomenon – "the eighth wonder of the world," Einstein called compound interest – through which time works in your favor via reinvestment, to generate additional returns over time.)
Even in an era of high inflation, it's important to recognize that it's all right to do nothing with your money. A lot of investors feel like they have to use their cash, and they're compelled to buy, buy, buy or sell, sell, sell. Sometimes, pausing is the best thing to do.
Patience, though, is one of those things that many people can only learn with experience... that is, the consequences of being impatient.
4. Remember that no one cares about your finances more than you.
My parents always told me that the only person you should rely on to look after your money and your financial future is yourself.
The financial-industrial complex – the financial media, private bankers, so-called trading gurus, and all the rest of them – wants to "help" you take care of your money. But their "help" often enriches them, far more than it enriches you. ("Where are the customers' yachts?" asked the title of a 1955 book about the hypocrisy of Wall Street. Short answer: The customers couldn't afford big boats, but the people who advised them certainly could.)
If you want to make sure your finances are well looked after, then by all means do get input from a professional. But remember that it's you who is accountable for your own money – and you should be overseeing everything about your own money.
What has your experience with money taught you... and what lessons do you hope – wish – you could pass on to others?
Let us know at feedback@healthandwealthbulletin.com.
Best regards,
Kim Iskyan
June 30, 2022
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