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Financial Education 101: Getting familiar with how money works.

financial-education-101-how-money-works

We see a lot of people struggling financially these days even when they are being paid $5,000 monthly and you wonder why.

And in some cases, you actually know where the money goes – Taxes, Mortgage, Bills, Food, etc.

While some of these are very necessary, when you look closely you would observe that these people go broke because they make their money flow in the wrong direction.

They spend money on liabilities that takes more money from them instead of assets capable of multiplying their money. They all need to develop their financial intelligence.

They need to learn how to manage, grow and retain their money. Once you are financially literate, you will be able to see the world from a different angle.

You will see an endless pool of opportunities and making money will be a lot easier with or without capital.

To build a financially free life, you need to know what to invest in (money, time, etc.), how to invest and when to invest.

You will not only need to build your empire by creating several sources of recurring income, but you will also need to learn how to retain your wealth. Don't aim at being rich, be wealthy! There's a difference.

This article aims to lay out in details in all clarity and simplicity, the fundamentals of building a financially secured career.

It aims to help you understand the basics of how money works and how you can control it in your life, as well as using it to your advantage.

At the end of this financial education series, you should be able to lay the foundations for a brighter future.


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Education, as we all know, is a very important aspect of our lives that when ignored, a person could be very limited in knowledge and thinking capacity.

Thankfully, at least up to half of the world is embracing education these days. Sadly, most people are only being educated formally on how to join the rat race, living pay check to pay check,

or perhaps, these people have failed to figure out how to turn their acquired knowledge to a good means of improving their standard of living.

Our formal educational system is so one-sided that even business schools would focus on teaching you how to manage other people's businesses.

Which means, at the end of the day you will still end up living pay check to pay check (maybe just a higher pay compared to the junior staffs).


When we talk of financial education, we don't only mean how to make good money. In fact, learning how to keep and multiply the money is even more important.

Anyone can make money but growing the money remains the major problem. For instance, have you met any of the annual lottery winners (they win millions of dollars) who actually succeeded in creating an empire out of his money?

No, they never. Okay, maybe one out of a thousand and you know why? Financial education. They lack the capacity to achieve anything tangible.

Even if they are given billions of dollars, they will likely squander it and return to square one just like the prodigal son.

A lot of people are making good money today since there are endless possibilities over the internet (you can join me in running a profitable membership website like Ghavoch)

but then again, if you cut out their source of income, they may probably go flat broke. Even if they made millions earlier.


This is the reason why they all need to go back to the drawing board. They all need a fresh new lesson on how to break out of the way the society has programmed them to think.

In order to be successful in breaking out of the rat race and joining the financially free, there is a certain way you need to think. Success starts with your mindset.

If you want to be rich, you must think like the rich! Also, most people rely on the school educational system to show them everything on the way of life.

They expect to be able to make millions because they are graduates. Well, to be frank, you will never learn the practical side of life in school.

Informal education is the actual key to knowing the way money works. You should do the observation yourself – haven't you noticed how most of the world's billionaires just happen to either be school dropouts or those who didn't even go to school at all?

Now, before you go thinking of dropping your kid out of school, you should know that school really doesn't have much impact on whether your child is going to be rich or not.


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Education – Formal and informal

To fully understand these educational systems, I will be making comparisons but at first, formal education has to do with the numerous schools we have in the world.

Believe me, schools are so important that without them, the world would be filled with billions of people who can't do simple addition of numbers.

However, schools are only good at producing engineers, doctors, accountants etc. Schools have failed to teach people how to succeed in the real world.

They are only focused on impacting knowledge (physics, biology, geography etc.) of certain professions without saying much about how to apply it in the real world,

how to make and retain good money with the knowledge (yes, making money is very important and that's the reason most people go to school anyway).


In fact, it's so terrible that most people now rely on schools to show them their left from their right.

Most people are now so lazy that the world is beginning to lack the main quality that made the world's top inventors produce the technology we have today - Curiosity.

What most people just want to do, is go to school, read and pass exams (they read to pass instead of reading to learn), come out and get a job.

Not knowing how to apply your knowledge in the real world isn't really the school's fault. It's actually yours.

Just like in school, you don't expect the teacher to teach you everything. Most times, you are expected to carry out more research on the topic and this is when the informal education comes in.


Informal education has to do with what you learn outside the school system and most times, it's more useful in life compared to the things studied at school.

Haven't you ever wondered why those who came out first class in the university usually end up working for the third class or those who didn't even go to school?

In as much as you need to at least go to primary school in order to learn how to read and write, informal education is actually more important in the real world.

It's through informal education that you get to learn survival skills. You don't learn to be smart and street-wise in school.

Learning to build an empire is done by actual practical lessons (from mistakes, failures, experiences, wins) in the real world.

Yes, the world's top billionaires are well educated – just not formally. Most of them learned the hard truth in the society by going out there,

doing things and gaining experience themselves, reading and learning from people's experience, or from observing people (and things) and asking questions.

Okay, some of them were quite lucky enough to be surrounded by people (family, friends) who did nothing but help build them for the journey in the real world.


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This doesn't mean all kids of the rich are going to build their own empires. In most cases, a rich kid is likely going to wait to inherit his father's wealth and sometimes, he will dry out the wealth after a few years.

Now, that is the worst possible form of someone who is completely uneducated financially, even in the midst of riches. That is poverty of the mind.

That person might be a professor in business management but still an illiterate on how money works.

For instance, that rich kid probably had a better chance at creating his own wealth or at least expanding his father's empire if only he learned the rules of money through his father's experience.

People don't accumulate wealth by accident. It takes a lot of financial capacity. The father certainly had more than enough to teach the son or the son could have at least learned through observation of the kind of decisions that improved his father's riches.


Honestly, the most educated people who usually end up doing something great are those always asking questions and trying to figure out why things work the way they do.

Without that burning desire to want to know how money works, you wouldn't be reading this long post right now. That's a good sign.

Overall, you should cease, every opportunity to learn as much as you can about finances. If you do not know how well to use your money, people will spend it for you, and once that happens, you will lose it.

You should try as much as possible to read financial topics, learn all you can about investments and business (whether you are an entrepreneur or not) with an open mind.


Please, do not go believing everything you read or see in the media! Some so-called financial experts are only good at misleading people to invest in the wrong market.

It's their job anyway. If they tell you the truth, they will lack customers and go flat broke. This is the exact reason why you need to broaden your thinking.

The reason why you need to be independent in decision making. The same reason why you need to be completely open-minded and ready to accept possibilities.

Most things are never the way they seem. Never be rigid in thinking! You alone have the power to make and grow your wealth. Other people are just like supplements to your achievements.


What am I saying? Learn from people but don't be controlled by them. The more you learn, the more possibilities you will see.

By now, you should be able to see that nothing is definite. The fact that Mr. A did this and succeeded doesn't mean Mr. B would.

Or that Mr. A failed doesn't mean Mr. B won't succeed in doing that same thing. Before the end of this post,

you will probably know a lot more about money than the average individual but what you do with the knowledge depends on you.

Most people will go through this post and continue their normal life as if nothing happened but I will be very satisfied if at least five persons are able to do something tangible with the information here. They should be able to make their life better and you should be one of them. 

What happens when you are financially literate and put the knowledge to good use? You end up starting a flourishing business or investing in an entrepreneur to launch one. Guess what?
That business ends up making people's lives better through quality products or services, increasing the standard of living of a few others since it will create employment,

reduces the crime rate, enhances the economy as well as being a source of inspiration and motivation to many others. Can you now see the power of a good financial education?



Breakdown of the major class of people.

The world is filled with different classes of people when looking at it from a financial angel. For instance, we have investors who usually plays golf, travels around the world but still makes millions annually.

The entrepreneur who only comes into the company when he sees fit to give instructions, spends time with family but still makes millions annually.

The freelancer who does a brief work for the company and earns more than the staff depending on his project.

And Finally, the employed who does all the work in the company but earns in a few thousand. Political officers are more like contract staffs while musicians, actors, store owners etc. are more like freelancers (self-employed).


Here's what happens behind the scenes.

  • -An investor gives money to an entrepreneur for a percentage his business profits and goes catching fun.
  • -The entrepreneur works hard at first, setting up a company, gets employees to do the work and spends time with family.
  • -The employees do all the work in the business all the time, makes the money for the company. Sometimes, the employees might outsource some jobs to the self-employed (freelancers).
  • -The self-employed carries out his task and leaves the company to another.


Time for profits, here's what happens.

  • -The company makes billions, removes expenditures, sends the investors share (millions) of the profit to the investor
  • -The entrepreneur takes out his own share (usually bigger than the investor's).
  • -The entrepreneur takes out a few thousands to pay each employee, sends a larger sum to the freelancer (self-employed) depending on the project he did for the company.


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Overall, the employees do all work and earn pennies from the billions while the entrepreneur (business owner) probably only makes a few decisions for the company and makes millions.

And the investor? He doesn't work in the company at all but still makes millions. Can you now see why many people struggle all through their lives?

They are in the wrong class. Don't get me wrong, there are employees and self-employed individuals who earn hundreds of thousands of dollars monthly (hell, some even get paid in the millions) and live comfortably on it.

Thankfully, this post isn't about telling you to be the entrepreneur (although gaining more entrepreneurs in the world won't be a bad idea).

God knows the world needs the employees. I mean, we can't all be entrepreneurs and investors. If we are, who will do the work for us?

We seriously need the engineers to handle the technical department, the accountants to handle the financial department, the lawyers to handle the legal department etc.

This article is about educating you on how to grow your money and get financially free even as an employee.


However, to be able to create a good solution, you need to take a good look at the problem so let's identify what class you belong in the financial level to help us know how you can improve in your finances.

Using a corporation to illustrate, you can easily see that in a company, there are investors, the majority share owner (usually the CEO),

the staffs (employees of the company) and the private contractor (isn't an employee, perhaps a freelancer) who just come to deliver a project, get paid and heads to other companies.



Investors – Just as seen above, these guys most of the time don't work. They just get some money and invest in a business or something valuable and may never even visit the business but at the end of the day, they get a share of the profits.

These people usually have a steady source of income for life except if their investment crumbles but then again, they hardly have a single investment.

These guys sometimes, are silent billionaires who might not even own a business but are seen as among the top respected wealthy people in the society due to their level of financial education.

Yes, you need to be financially intelligent to be able to analyze and know the right thing to invest in, how to manage and grow it. Otherwise, you might lose your life savings.


Entrepreneurs – As the name suggests, these are the real businessmen and women. Those who are creative and innovative enough to produce a product or offer a service,

grow it to a mega company (over 500+ employees) and reap the fruit of their labour afterward.

These guys usually find a problem, create a solution for it, get funding and turns it into a big business where they won't have to work all the time.

Since they are the owner of the company and they have a lot of employees doing the work in the company,

they can decide not to go work again (yes, they can put anyone in charge and some entrepreneurs hire others to run their company for them) but will still make millions at the end of the day.


Self-employed – The modern-day society seems to have a lot more of these guys around. This is no longer limited to small business owners like retailers.

These days, we have a lot more like web designers, writers etc. identified as freelancers. Freelancing is now more attractive and most times, more lucrative than finding a regular job since the amount you make solely depends on you.

Being self-employed implies that you are your own boss and can accord enough time for yourself.

You could take a vacation if desired and can even make more money by working more but, the sad part is the fact that the moment you stop working, your money stops flowing.

This, at the end of the day, could still make you a slave to yourself. You still have to work all the time and you shouldn't expect to get wealthy as a self-employed individual.

 

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Employee – Well, this is where the rest of the world falls to. Those probably working all their life and earning pennies at the end of the day.

Note: the pennies they are paid could actually be up to a million for the management teams (or millions for most footballers) but at the end of the day, it's nothing compared to the profits being made by the company.

It's a pocket money compared to the amount of money the entrepreneur makes and its peanuts compared to the amount of work they do for the company.


Why am I saying all these? To help you see how the money in the society is distributed. How it's made, earned, grown and lost.

In summary, those who do the work, make the least amount of money. The higher you climb up the career ladder, the lesser work you do and the more money you make.

Now, what class of the above people do you belong and what class would you rather be? Are you now beginning to see why you need to be more financially educated?

Now you know where you belong, let's now see how you can improve your finances or change to a better class completely.

Next episode: Financial Education 102: Working for money vs. making money work for you.


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Financial Education 102: Working for money vs. making money work for you

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