Becoming Rich through Financial Literacy
Have you ever imagined what life would be like if you were “Rich”? Rich is a relative term we have all fantasized about along with countless other things. Many fantasies are just that and have no chance of coming to fruition. I will never win a Super Bowl, Stanley Cup, Nobel Peace Prize (even though Hitler was nominated for one) or an Oscar, but almost anyone can become “Rich”. Becoming “Rich” is pretty much achievable for anyone who would like to become “Rich” and starts relatively early in life with a good foundation. That is, if your definition of being “Rich” is having a fat bank account. It’s likely your definition of “Rich” will change throughout your life, but for this blogs purpose we will focus on acquiring said fat bank account.
A sound foundation for becoming “Rich” is Financial Literacy which is one the Three Pillars of Education for Junior Achievement. Financial Literacy has a very broad definition but at the core it really is simple. It is having the skills and knowledge that will allow you to make effective decisions with your resources. I would also say upfront that maybe the most important part of financial literacy and becoming “Rich” is discipline and that is not really mentioned. Not the kind of discipline I learned in the Marine Corps, but a disciple to adhere to a budget and avoid keeping up with the Joneses. As a finance professional, I believe Financial Literacy is so much more than understanding various aspects of finance. Financial Literacy is a very necessary life skill that is often totally ignored by the general population. I will lay out a few knowledge nuggets in this blog that will hopefully add some value to whomever reads this.
I think most people have heard of the crazy bankruptcies and falls from grace so many athletes and celebrities have gone through. Some good examples of this are Mike Tyson, Evander Holyfield, Michael Vick, Larry King, 50 Cent, Willie Nelson, Burt Reynolds whom have had a combined career earnings of greater than $1 Billion. That’s right these mind giants burned through a combined one thousand million dollars in career earnings. How can someone do that? We are so quick to criticize, but is the average ordinary citizen any better?
It may or may not surprise you, but I was stunned when initially learning some of the following statistics. However, after giving it some thought based on what I have seen over the years, it ended up making much sense.
As of 2016 the average Americans 401k balance was $92,500, an all-time high. To some people that may be a decent number. The trouble with the $92,500 balance is that it is an average based on people that actually have retirement accounts, and only 49% of adults 18-49 have retirement accounts. That coupled with the average credit card debt being $15k per household, the average amount of equity in a person under the age of 65’s home is $43,000, and that 64% of Americans do not have access to $1,000 speaks volumes of the lack of Financial Literacy and discipline in the United States.
I have personally seen both middle income earners become a millionaires and I have seen fortunes disappear all because of Financial Literacy or lack thereof (and discipline). I have seen this play out many times throughout my career, and I believe I will continue to see this for the rest of my life. A great example of being Financial Literate with discipline is Ronald Read. Mr. Read was a career janitor at a gas station; not your typical 1% career path. Mr. Read spent his life living beneath his means and investing throughout his lifetime, and when he passed away at 92 years old his estate was worth $8 million. I did not know Mr. Read, I am just familiar with his story. Mr. Read is an extreme example of living beneath your means and maybe over saving but it certainly illustrates the point of almost anyone can become “Rich”.
In closing, I play chess in my spare time. There are a mind blowing 169,518,829,100,544,000,000,000,000,000 ways to play the first 10 moves in chess. Life has infinity more moves, which could happen every day for almost everyone. The same applies to money, there are plenty of ways to acquire wealth or spend every penny you ever earn. One can become “Rich” by becoming a high earner i.e. Doctor, Lawyer, Executive, Entrepreneur or be a disciplined life saver like Mr. Read. Financial Literacy is not rocket science. One does not need to be a finance wonk to make it “Rich”. I have seen many people become wealthy and there is a common theme. They tend to pay themselves first, and spend less than you make. They invest with people they know and trust. When there is a great investment opportunity they have the money to take advantage of the opportunity. It sounds simple yet so many people fail to do this and become “Rich”. It normally does not happen overnight but is a lifelong habit that really is achievable.