Financial Education | The 4 Rules Of Being Financially Literate

Financial education means having the skills and knowledge to make smart choices with your money. 

It’s also called “financial literacy” and is very important for getting ahead in life. 

If you want to improve your personal and financial life, you might be aiming for financial freedom and independence. 

This means not having to rely on family, a job, or a company you don’t like for money. 

Another important idea is “financial confidence.” 

Unlike financial freedom, which depends on how much money you have, financial confidence is about believing in your ability to make money. 

Many people think money is scarce and hard to earn, but that’s not true. 

There’s plenty of money out there, but you need the right skills and knowledge to get it. 

Think of money like a game with rules. 

If you follow the rules, you can take control of your financial life. 

Now before we start, this is Ivan here from the Vanilla Investor, a former investment analyst and with over $100k invested in the markets. 

My goal is to bring you simple finance at your fingertips. 

The Problem With Financial Knowledge

It's really interesting how all this financial information is getting easier to find every day, often for little or no cost. 

You can find a lot of it with a simple Google search. 

Despite this, more than 90% of people still don't know much about money. 

For example, Ben gets his monthly paycheck of $2,600 after taxes. 

Instead of saving or investing it, or using it wisely, he spends it on pizzas with friends and other unnecessary things. 

Are you like Ben? 

Many people today don't know much about money, but with a few changes in habits and thinking, almost anyone can become wealthy. 

No rich person is financially ignorant, except for those who got lucky with a large inheritance or winning the lottery. 

But even then, 70% of lottery winners go broke after a few years of being rich. 

Why? 

Because they don't know how to manage their money. 

To stay rich long-term, you need to learn about money. 

Unfortunately, this isn't taught in schools, so you have to learn it on your own. 

With all the information easily available, why don't people learn more about finance? 

There are two main reasons people don't get the financial education they need, even when it's very cheap or even free.

Reason 1: Break Out of Common Beliefs

Here's the truth: 

Most people don't see financial education as normal. 

They often teach you to think there isn't enough money, and if you believe this, you'll never attract money. 

For example, your parents might have said things like "money doesn't grow on trees" or "money is the root of all evil." 

These beliefs stop people from improving their financial lives. 

Another wrong idea is that debt is always bad. 

Debt isn't necessarily bad if you know how to use it, but many people fear it because they don't understand it. 

So, stop listening to those who aren't good with money. 

Instead, listen to people who know how to make money, as they can give you valuable tips on becoming financially educated. 

Just like you wouldn't learn to swim from someone who has never swum before, you shouldn't learn about finances from someone who isn't financially smart. 

Use this approach to your financial education, and you'll learn quickly.

Reason 2: Stepping Out of Your Comfort Zone

To make money, rich people believe you need confidence and good self-esteem. 

You have to believe you deserve to be wealthier and happier, or you won't become rich. 

It's like a self-fulfilling prophecy—you need to see yourself as rich first. 

This confidence will help you step out of your comfort zone, which is very important. 

A successful person once said, "most people are not successful because they are afraid of success." 

To be successful, you must take risks and step out of your comfort zone. 

For example, if you want to start a business but don’t have money, you might need to take the risk of getting a loan and going into debt, which can be scary. 

Confidence and charisma are key to becoming rich. 

Without confidence, you won’t take action. 

And without action, you won’t become rich. 

So, before learning about finances, work on building your confidence and being okay with taking risks and dealing with failure. 

Confidence will help you take risks and do well under pressure. 

Now that you know why people don’t get financially educated and why it’s important, let's start with the 4 most important rules of being financially educated.

#1: Only Invest In Things You Understand

Investing is important if you want to grow your money. 

You can't get rich long-term by just working for someone else. 

You need to start investing. 

There are many types of investments like stocks, bonds, real estate, and forex. 

There are other types of investment, but the most important investment is in yourself. 

Before putting money into anything else, invest in your own growth. 

Your brain is your money-making machine, so you need to learn how to run a business and manage money. 

Stay updated on what's happening in your area of interest to stay ahead. 

Another thing is to invest in your business. 

If you buy or start a business, you’ll want to make it bigger someday. 

You need to put money into your business to help it grow, just like a car needs gas to run. 

A business is the same. 

You might spend money on advertising, research, or new products. 

Anything to help the business grow! 

Now let's talk about properties. 

Real estate investing means buying properties at a low price and selling them at a higher price. 

It sounds simple but has many steps. 

Many investors start with homes and then move to bigger properties like hotels and offices. 

One way to invest is to buy old, run-down places, fix them up, and sell them for more money. 

Another way is to buy properties and rent them out. 

The rent money can help you pay your mortgage. 

If you do it right, your tenants help you pay for the property. 

Lastly, let's talk about stocks or shares. 

Stocks are small parts of a company that people can buy. 

When you buy stocks, you own a little part of the company’s profits, which is tied to how much money you put in initially. 

There are two main ways to make money from stocks: capital gains and dividends. 

Capital gain is when you pick a stock you think will grow in the future. 

You buy it and keep it for a long time. 

If your guess is right, the stock will be worth more than when you bought it. 

Then, you can sell it and make a profit. 

The second way is through dividends. 

This means the company gives you some of its profits for owning their stock. 

Many people like this because it gives them regular money, even if they don’t sell the stock. 

Like any investment, the stock market is pretty risky, and lots of people lose money, so you have to be careful. 

So, these are four of the most well-known ways to invest. 

No matter what you pick, you need to know what you’re doing. 

There are rules to follow and lots of wrong information out there. 

So, be very careful who you listen to, do your research before investing, or ask an expert who knows a lot about it. 

And always remember: don’t invest in something you don’t understand.

If you are enjoying this and you want to learn more about investing and personal finance, then I would appreciate it if you can join my free newsletter here. 

Okay, let’s move on to:

#2: Debt Is a Powerful But Risky Tool

It’s like a double-edged sword. 

If you know how to use it wisely, it can help you a lot. 

But if you're scared of it, you might miss out on many good opportunities. 

There are two types of debt: bad debt and good debt. 

Here’s how I see them: bad debt can steer you away from your goals, while good debt can help you reach them. 

Let’s talk about bad debt first. 

One big example is credit cards. 

You might already know this: credit cards charge high interest rates, and if you don’t pay off your balance, it can grow really fast. 

As of 2024, the average American owed more than $6,200 on their credit cards.

Try to pay off your credit card bill in full every month. 

Or, if you find yourself buying too much on credit, consider buying less. 

Another type of bad debt is buying luxury items. 

Many luxury things lose their value over time. 

They might look nice and shiny, but they don't serve a practical purpose. 

Some luxury items, like a pair of mint-condition Air Jordans from the 1980s, can be worth many times the initial store price, but most don't. 

It's okay to treat yourself if you can afford it. 

But borrowing money to buy luxury items can set you back. 

Good debt, on the other hand, is borrowing money for things that can help you in life. 

It helps you build wealth and happiness in the long run. 

Examples include mortgages for buying a home and student loans for education. 

Getting a mortgage means you own a home, and making mortgage payments helps you build ownership over time. 

Even though student loans might seem daunting, they're an investment in your future earning potential. 

Having a degree can mean you'll earn more money over your lifetime. 

Research by the Social Security Administration shows that men with bachelor’s degrees earn $900,000 more over their lives compared to high school graduates. 

For women, it’s $630,000 more.

But remember, even good debt can turn bad if you take on more than you can realistically pay back or at too high an interest rate.

#3: Having a Rich Mindset

In other words, thinking like someone who is rich. 

This means seeing yourself as wealthy and acting that way. 

It's about thinking smart about money, even if it means spending a bit more sometimes. 

Here’s what I mean by this. 

Let's say you're shopping for clothes. 

A poor mindset would be just picking the cheapest shirt. 

But a rich mindset would be looking for good value—making sure what you spend is worth what you get in return. 

It's good to live within your means to avoid money problems, but it's also okay to spend on things that make you feel confident and happy. 

Simply cutting out small expenses like coffee from Starbucks won’t make you rich. 

Instead, try learning new skills that can help you earn more money and support the lifestyle you want. 

This way of thinking can change how you see money and find new ways to make it.

#4: Develop Skills To Acquire Assets

Like in the book Rich Dad Poor Dad: assets are things that put money in your pocket, while liabilities are things that take money out of your pocket. 

Your brain is your best asset, and you can make it worth more by learning new things. 

Some skills are highly demanded in the marketplace because they bring a lot of value and make you a lot of money. 

Instead of just working for someone else, learn skills that help you earn money by doing things people need. 

Find what you're good at, and learn high-paying skills to get what you need to buy more assets. 

Also, be sure to check out my book summary for Rich Dad Poor Dad, it’s an excellent book for anyone new to financial education, or you can check out the more advanced sequel, Rich Dad’s Cashflow Quadrant, which talks about the 4 different quadrants that you can earn money from.

Thank you for reading, cheers!

- Ivan