It’s not common to talk about money with our friends and family, and it’s not a mandatory subject in schools. Yet, it’s extremely important for us to be educated in the basics of this field. Finance affects all of us whether we want it to or not. Step #1: Learn to speak the language of money.
Money is often referred to as a game, and we have to participate in this game, so we’d better learn how to play it, or we will lose. It’s that simple. The first step to learning the skill, is to know the language so we don’t get taken by words that don’t make sense to us. It’s wise to be able to have educated conversations with people in finance. To do so, we must understand what they are saying, just like understanding a foreign language. The words, number systems, and associated meanings, are the tools needed to navigate the conversation.
Be wise, don’t be tricked.
We can’t rely on our adviser (if we have one) to teach us everything we should know, they don’t usually have the time. We certainly shouldn’t rely on banks. As financial institutions, they have their own agenda. In fact a bank will tell you your house is an asset, but not tell you it’s ‘their’ asset – that’s part of the game. Often we make decisions based on opinions handed down from past generations. Times have changed, so what was a good idea for our parents and grandparents, may not still apply.
Being uneducated in this game is the biggest financial risk we can take, yet it’s in our power to grasp it. Learn step one the same way you learn any language: go through some workbooks, chat with people who speak it well, take a course, try a “Word of the day,” and then immerse yourself. Start small, make a move and get in the game.
Take action: Here are a handful of terms to look up and get you started on financial literacy… fiduciary, valuation calculation, short a stock, book value and market value, equities and bonds, cash flow forecast, cap rate, EBITA, index, derivatives, futures, dividends.
:: Inspired by Robert T. Kiyosaki’s book, Rich Dad’s Cashflow Quadrant: Guide to Financial Freedom.
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