There’s no doubting the fact that school teaches us many things like how to add and subtract and how to find the areas of a triangle. Unfortunately, a lot of what you learn in school isn’t exactly that practical. For instance, how many times have you had to find the value of “X” to solve a real-life problem? I’m guessing almost never and while school does teach you how to do these types of things, they also miss out on teaching you other critical life lessons, many of which relate to your finances!
Here are 5 of the lessons they missed the mark on the most!
Lesson #1: You must invest more and save less
The first finance hack that you will never learn from school is that you must invest more and save less. In school, you were taught that a good money practice is to save your money. This is partly true but if you want to build sustainable wealth, then you need to do more than saving your money — you need to learn to multiply your money which you can only do through investing.
So what’s the difference between saving and investing? Saving money simply means keeping aside a portion of your earnings for future use while investing is using your money to buy assets that can yield a profit over time. Now don’t get me wrong, saving money is critical to your financial success because it gives you access to cash whenever you need it. Again, saving money is a way to raise enough money to start investing. However, if you only stop at saving money, you likely will never become rich. Most savings accounts offer interest rates that are less than the rate of inflation which means that the longer you save your money, the more value it losses.
For instance, if you had $100 in a savings account ten years ago, that $100 back then would have bought you a lot more than if you had that same $100 now because over time money can lose its purchasing power due to inflation. So you can see why you may never become wealthy through saving alone!
Investing on the other hand is an excellent way to build wealth because your assets have the ability to increase in value over time. One of the questions that many beginners have is where to invest their money so let’s answer that question now.
First, the most important place to invest your money is in yourself. You are more valuable than any other asset because there is no limit to how much you can grow. This is one of the habits of many rich and productive people in the world. You can invest in your knowledge by reading books and listening to podcasts. In fact, the average person spends several hours in their car every year and you can take advantage of this time by turning your car into a mobile university where you listen to seminars and podcasts that will improve your life.
The next place to invest your money is in physical assets such as real estate. Owning real estate, especially rental properties, is one of the secrets of the richest people in the world. You earn passive income from monthly rent and the value of your property can increase with time. Another asset you can invest in are stocks. This simply means buying the shares of a company and you can earn money either through dividends or capital gains when the value increases. Other ways to invest your money include bonds, index funds, mutual funds, and many more. So overall, you should ensure you are prioritizing investing over saving if you want to see financial progression in your life!
Lesson #2: You can become a millionaire with zero effort
Another lesson that school didn’t teach you is that you can become a millionaire with zero effort. I know this sounds farfetched but hear me out.
The conventional way of achieving financial freedom is to go to school, get good grades, look for a well-paying job, work for several years, save money, contribute enough for retirement, and finally retire. This is the typical life path and it can help you eventually retire but for most people it never amounts to true financial success.
Let me ask you a question. How many of the richest people in the world today became rich using this method? You probably don’t know any because the rich opt to take more efficient paths to achieve their financial goals.
Therefore, let me show you how people become millionaires with zero effort. The secret is investing consistently over many years. Remember how we talked about investing earlier and how it’s a reliable way of building sustainable wealth? It is also a way to build wealth with zero effort. Now, I’m going to give you a practical example of how investing can make you wealthy and we will use index funds to do it!
First off, an index fund is a type of investment that tracks the performance of a market index such as the S&P 500 and according to historical results, an index like the S&P 500 has an average annual return of about 10%. So, if you invest $200 every month for the next 40 years at 10%, you would have just over $1 million. However, if you save $200 every month for the next 40 years, you’ll only have $96,000 (just to illustrate the difference between saving and investing). Therefore, if you are patient and consistent you can achieve true wealth with little effort but of course school will never tell you that!
Lesson #3: You can rid debt with other debt
Again, one thing that they didn’t teach you in school is that you can eliminate debt with other debt. In fact, going to school can put you in debt through student loans so school is certainly not the place where you learn how to pay off debt more strategically. However, one of the tricks you can use to pay your debts, especially when you don’t have any money, is to use low-interest debt to pay off high-interest debt.
So how does this work? Let’s assume you have a debt of $10,000 and the interest rate is 15%. If you only pay $200 every month, it would take you 79 months to pay off your debt with you paying an additional $5,791 in interest. However, if you finance your debt using another loan with a lower interest rate, say 9%, and you continue to pay $200 every month, it would take you only 63 months to pay off your debt with an additional $2,580 as interest!
Now, this example is oversimplified but I think it gives you an idea of how financially beneficial it can be to pay high-interest debts with lower-interest debts. However, keep in mind that it may be a challenge to access this lower-interest cash if you are carrying large debt balances to begin with as lenders may see you as being too risky of a borrower. In this case, your best bet is to simply adjust your lifestyle to free up as much disposable income as you can every month to put towards paying down your debt.
Another method you can use to eliminate debt quickly is through debt consolidation loans. That is, you take out a loan that includes all of your outstanding balances. This process converts your mortgage, student loans, auto loans, and any other debt that you are paying right now into one single debt. If you qualify for this loan, you’ll ideally be getting an interest rate lower than what your current balances possess which will ultimately reduce the interest you end up paying. However, it’s important to know that a consolidation loan is not equivalent to eliminating debt. You still have to take responsibility and contribute as much as you can every month to clear your debts.
Lesson #4: You don’t need college to get rich
One of the things that they’ll never teach you in school is that you don’t need college to get rich. I’ll say it again that school is important but it doesn’t guarantee that you’ll become rich. If anything, it will only give you enough knowledge to become gainfully employed but that’s usually about it. It’s usually people who extend their learning past college or avoid college all together that end up becoming financially successful.
For example, Steve Jobs and Steve Wozniak both dropped out of school to pursue their dream of founding Apple. Today, it has grown to become one of the most valuable companies in the world with over 147,000 employees. Michael Dell of Dell computers is another example of someone who demonstrated that you don’t need college to get rich. Other examples include Bill Gates and his partner, Paul Allen of Microsoft, Mark Zuckerberg of Facebook, and many more.
Now, here are a few lessons to learn about what it takes to become rich even without going to college. Firstly, you need to have something that you believe in so much that you’re willing to give everything it takes. Mark believed in Facebook and that was why he dropped out of school. Bill and Paul believed that Microsoft would become successful so they gave it everything they had. Again, you need to have an idea or a product that people want or better yet need. It doesn’t matter whether you’re a dropout or the most educated person when you have a brilliant idea or product. Also, you must be willing to work hard until you become successful — but I am sure you already knew that!
Lesson #5: Credit impacts more than just getting a mortgage
Finally, schools don’t teach you that credit impacts more than just getting a mortgage. What most people understand about their credit score is that it affects their mortgage. They know that with a good credit score, you’re likely going to qualify for a mortgage with a preferable rate. However, they don’t know that their credit affects them in more areas than they can imagine.
For instance, your credit score can hinder your ability to get a job. You may have all the qualifications for a particular role and your resume matches exactly what the company needs. However, a bad credit report may hurt you badly. Employers want to hire someone who is responsible and would contribute the greatest to their organization and one of the ways they access that is by checking your credit report.
According to a CareerBuilder survey, 72% of employers conduct a background check on all employees they hire and 29% check their credit reports. Usually, if you have multiple credit infractions like missed payments, the employer will use this against you in your case to become employed with them.
Another way that this may affect you is that you are likely not going to get the best rate on credit cards and loans. Creditors use your previous credit records to estimate whether you will default on your loans or not. If you have a bad credit report, creditors will consider you a risk and charge you a higher interest rate.
Moreover, you may find it difficult to be approved for an apartment with a bad credit score. Many people don’t know that landlords often check your credit before approving a rental application.
Overall, credit is an important factor in your financial success, but sadly school never teaches you this.
All in all, I hope this helped fill the gap between what you learned in school and what you’ll need to see the financial progression you want in life!