Here’s a summary of some of the most important things I’ve learned about personal finance.
The goal? Take control of your money instead of letting it control you.
Fact 1: You will win the million-dollar lottery.
- Well, not really! However most families will earn a million or more in their lifetime.
Fact 2: The only way to accumulate wealth is to spend less than comes in.
In other words living within your means. It’s a simple mathematical equation!
Spending < (less than) Income You’re saving & investing Creating wealth
Spending = (equals) Income You’re living paycheck to paycheck You’re broke
Spending > (greater than) Income You’re in slavery to debt Creating debt
Fact 3: A Spending Plan helps you to see if you’re spending less than what you’re taking in
- A spending plan means you determine where your money is going, not someone else.
Fact 4: The two main ways to get a pay raise.
- Increase Income- If you own a business, you have one of the best ways to increase your income and decrease one of life’s biggest expenses- taxes.
- Decrease Expenses- Decreasing expenses is another way of getting a pay raise. The advantage of this “pay raise” is it is tax free and doesn’t disappear if you lose your job, get sick, or retire.
Fact 5: Debt is one of the greatest hindrances to building wealth.
- Until all debt is paid off, consider implementing a spending moratorium - buying only what you absolutely need today.
Fact 6: You don’t need a credit card for emergencies; you need money and relationships.
- Setting up an emergency fund is essential because you will have emergencies.
Fact 7: Interest makes someone a lot of money.
- It could be you earning the interest and building wealth. It could be someone else earning interest and putting you into debt.
Fact 8: When passive income exceeds expenses, you can retire and be financially free.
- Passive Income is money that comes in when you’re not working- i.e. investments or business profits.
Fact 9: Most wealth comes from working for profits instead of for wages.
- If you are paid by the hour, no matter how much you earn, your income is always limited by the number of hours you can work.
- Increasing assets that produce passive income is more important in the long run than increasing wages.
- Develop multiple sources of income. You are financially at risk when your only source of income is from wages.
Fact 10: Most Americans are Broke not Poor.
- Being broke is controllable. Being poor is a sad condition and an entirely different matter.
Fact 11: Things often cost way more than you think.
- Be sure you consider the total cost of an item both in dollars and in hours of your life. (life units)
Fact 12: Purpose of TV is not entertainment.
- The purpose of TV is to get you to watch ads. The purpose of ads is to create discontentment with what you have or are and get you to believe that spending your hard earned money on their products will solve your problems.
Fact 13: Being a Prosumer is easier on your checking account and on the planet.
- A prosumer is someone who does not only consume things but also produces things for himself.
Fact 14: Americans suffer from two plagues: Debt and Overweight.
- Debt destroys our finances. Overweight destroys our health.
Fact 15: Knowledge is power and personal finance doesn’t have to be a mystery.
- Educate yourself and take control of your finances. It need not be intimidating.
From our book: The Frugal Prosumer Debt Workbook by John & Mary Johnston