Financial literacy is not just about numbers. It’s all about mind set.
By Francisco Colayco
Money management starts with understanding what money means to us. In a market-driven economy like ours, money is indispensable. It is the means to live the lifestyle we choose and to share what we have acquired.
To each according to his deeds. This is the fundamental principle we live by. We are responsible and accountable for our own future. We exist for a purpose and part of that purpose is to enrich our lives and the lives of others. To achieve this goal, we must first secure our own individual wellness. We cannot share what we do not have. In the end, it’s all about building financial and spiritual wealth over our lifetime.
When is one wealthy?
Depending on how one views assets and money, the concept and obligation to build wealth appears to be lost to a great majority of income earners. Most are focused on the amount of money to be earned and spent (almost as quickly as it is earned). Only a few specifically plan and measure wealth in terms of assets and money relative to the amount of their time left in this world and to their other life goals e.g. sharing their bounty with their community.
Professionals, especially those occupying finance-related managerial positions know every detail about their company’s finances and plans for growing their employer’s wealth. Unfortunately, many of these professionals hardly pay attention to their own personal financial situation. They focus on what they personally earn and forget that such income may not be sustainable. They get lulled into thinking that their employers will always be there to provide: good income when they are actively employed and enough pension benefits when they retire. But the sad part is that there is no guarantee to this. The greater part of employees (at all levels) will need to augment their pension benefits so that they can sustain their chosen lifestyle after retirement.
For those who are thinking of their future, there is one important economic question to ask: “How long will you be able to sustain your chosen lifestyle, if you stop actively working for money today?” But is there a one right answer to this question? Is it 10 years? Is it 20 years? A 20-year-old professional may be able to sustain his lifestyle for 5 years without working. Is he then wealthy? How about a 90 year old whose net worth may also sustain him for another 5 years? Is he wealthy? Clearly, the right answer is unique for every individual. His age, his lifestyle, his net worth and his earning power will determine whether his is wealthy or not. It is the individual’s values that will ultimately determine when he has achieved the wealthy status.
Some live with the philosophy to live rich and die rich. Some believe otherwise. They are quite happy to live as richly as they can so that when they die, they die poor. This group puts a premium on sharing their wealth while they live. They measure their worth by the number of lives they touch with their resources. They accept their mortality and their responsibility as stewards of their assets while active in this world. They realize that they don’t have use for money when they are gone.
Whichever philosophy we live by will determine our personal financial strategy. Quite obviously, the financial behavior and related investment decisions of such individuals will be radically different. Is one then wrong and the other right?
Whatever the belief, the reality is there are two roles for every economic being: active entrepreneurship and passive entrepreneurship. Thus, in our financial lives, the active income generating strategies and passive income generating strategies must be distinct and time-bound.
Reality also dictates that it is an obligation to learn to be a knowledgeable investor, to become a passive entrepreneur. After all, we can only be an active entrepreneur for a part of our lives. But we can be a passive entrepreneur for our entire life. This is the fundamental principle behind the need for financial planning at all stages of our financial and physical lives.
Time is of the essence. Growing wealth is based on time and compounding of earnings and interest. Success is better ensured when we start early.