Over the past 30 years, I’ve read over 1,500 non-fiction books on a variety of topics to help guide my life in pursuit of success. I have read over 200 books on personal finance and money and over 400 books on trading and investing.
When it comes to the psychology of money and wealth building practices, let me explain the 10 money lessons I’ve found to be the most powerful and life-changing.
10 most important money lessons to learn
- Money is neither good nor bad. Its meaning comes from how it is acquired and used.
- Where and how money flows is governed by a set of rules.
- A salary is just the first step in your financial journey.
- Being rich and being wealthy are not the same thing.
- You get rich by separating how you make money and how you sell time.
- Cash flow assets are more important than earned income.
- There are many ways to make money by investing and trading, but all successful people have a system of advantages.
- Compound interest in capital gains is more important than income.
- There are legitimate ways to optimize your minimal tax payments.
- Building a successful business is the best way to build wealth.
Money is neither good nor bad. Its meaning comes from how it is acquired and used.
Money itself is neither good nor bad. Its value comes from how we acquire and use it. If we earn money ethically and honestly and use it to support ourselves and those we love, it brings a positive force into our lives. and use it to hurt others, it becomes an opposing force.
If we can make a profit by building businesses that produce high-paying jobs and products that people want, and reward the investors who put their capital at risk, that’s good for everyone. It sucks when wealth is created by selling products that don’t work as promised or by losing money that investors risk.
Understanding these principles is essential to making sound financial decisions and achieving long-term success.
Where and how money flows is governed by a set of rules.
Money doesn’t just flow randomly. It has a set of rules governing how it works. Understanding these rules and how they affect our finances is critical to making informed financial decisions. It includes principles such as inflation, interest rates, and monetary policy.
The flow of capital into investments that are expected to appreciate in the future. Employees are paid based on the supply and demand of their skill sets within the industry and how well employers value them. Sports stars, singers and actors are paid based on the cash flow they generate from their fans.
Inflation eats up the value of your savings when you’re not investing. A central bank’s monetary policy determines the velocity and quantity of money through the economy.
A salary is just the first step in your financial journey.
Having a job and a regular paycheck is a great starting point for building your financial future. To achieve financial freedom, you must learn how to manage your money, invest wisely, and generate multiple streams of income. A salary alone will not give you the financial security and freedom you seek.
You need to convert your earned income into capital for investments, acquisition of assets, trading, and building your business.
Being rich and being wealthy are not the same thing.
Many people equate being rich with being rich. But income alone does not make us rich. Wealth is the accumulation of assets that generate income and increase in value over time. We need to focus on accumulating assets to provide long-term financial stability.
Wealth is built on how much you keep, not how much you earn. Being rich is measured by net worth and cash flow, not salary amount. The richest people have high net worths, not jobs.
You get rich by separating how you make money and how you sell time.
To become wealthy, you must find ways to generate income without exchanging time for money. This can be done through investing in stocks, real estate, and other assets that generate cash flow and appreciate in value over time. Most wealthy companies hire employees and managers to run them, building businesses that can eventually be cut off. By decoupling income from selling time, you can create long-term financial security and freedom.
Instead of paying to buy things, think about the assets you pay to own. Spend your time building something of value, whether it’s a business, intellectual property, rental property, or an investment and trading system that you can leverage for future income. Your time is limited. You can’t leverage it directly with your employer for wealth. You can build something over time and become wealthy in the long run.
Cash flow assets are more important than earned income.
Cash flow assets such as rental properties, businesses, intellectual property, royalties and stocks that pay dividends are more important to our financial future than your income. Even generate passive income that can pay for personal expenses. Investing in cash flow assets creates a reliable source of income that provides financial security and freedom.
There are many ways to make money by investing and trading, but all successful people have a system of advantages.
Investing and trading are great ways to generate wealth and mixed capital. However, successful investors and traders have systems that give them an edge in the market. Use fundamental analysis, technical analysis, or a combination of both to make informed investment and trading decisions within the context of system parameters and guidelines. Having a system with an edge can increase your chances of success in the stock market.
All investors and traders who made their fortunes in the stock market had a few things in common.
- They produced an excellent risk/reward ratio upon entry.
- They understood their market advantage and stayed within their circle of competence.
- Their focus was long-term performance rather than one trade or investment.
- They kept their discipline and coolness through all market environments.
- they managed the risk.
Value investors, trend followers, day traders, and growth investors all had common characteristics.
Compound interest in capital gains is more important than income.
Compounding capital gains is the process of reinvesting your investment returns to generate even greater returns over time. This is more important to your financial future than having a high income. By reinvesting your earnings, you can grow your wealth exponentially over time.
Compounding your earnings is a money-making technique. Once your capital is big enough and your profits are positive, you’ll be amazed at how much this will grow your wealth and how it will pick up speed over time.
There are legitimate ways to optimize your minimal tax payments.
Paying taxes is necessary for survival in society. However, there are legal ways to minimize the tax burden. You can use deductions, credits, tax deferral accounts, and other tax optimization strategies.
Important things to understand about taxes and money:
- Employees pay income tax first, then expenses. Business owners first pay their expenses and then pay taxes on their earnings.
- Investors pay capital gains tax only when they sell and make a profit, not when they hold it.
- Most of the richest people in the world hold most of their net worth in shares of the companies they founded in order to avoid capital gains tax on their net worth.
- Traditional tax deferral 401ks and IRAs allow you to reduce your income tax burden by depositing capital there.
- Traditional tax deferred 401ks and IRAs allow you to earn tax-free capital gains and compounded returns until you withdraw the money in retirement.
- Whether a Roth, a traditional 401K, or an IRA is best for you depends on your current income tax rate and expected tax rates after retirement.
Summary of Key Principles
Money is essential, but you have to know how to use it well. I learned that money is like a tool and that in order to acquire an asset, it must be earned and used in a proper way. There are some rules to how money works, and you need to understand them to make smart financial decisions. Getting paid is just the beginning and you should focus on accumulating assets that will make you money without having to work all the time. Cash flow assets are essential and buy what pays you. You need a system to successfully invest and trade. Compounding your earnings is more important than just having a high income. You can also legally minimize taxes and save money. Learn and apply these 10 money lessons to help you achieve financial stability and live your best life.