Having good financial IQ is not about saving tons of money or dumping them into mutual funds. It is developing a healthy relationship with money and building a wealth of assets that will generate you money.
What does it take to develop your financial IQ?
Delayed gratification is one of the most important aspects to developing your financial IQ. Take this as a hypothetical example.
Would you pay for a pint of milk or a cow? If you buy milk, it is consumed and it is over. You will have to buy milk over and over again when it is finished. Even if the milk costs less than a cow, in the long run, you will still be buying milk again and again. Now, if a cow were to cost 50 times more than milk, you might pay through your nose when you purchase the cow, but after consuming 50 pints worth of milk from the cow, you would break even on your investment and save more money in the future. In fact, the cow might give birth to 2 or more calves and you could sell one of them for profit! Get the idea?
EVERYONE is capable of creating wealth. When you take a beat up old car and give it an overhaul, paint it with a new coat of paint, and change a few more parts to make it start running again, you could sell that car for more money than if it was just a beat up old car. You would have created wealth in the process!
How about a farm? If you turn a farm into a country home getaway resort, wouldn’t the value of the farm land increase manifold?
It is the same principle for chefs, computer programmers and craftsmen. The sum of the whole is greater than the parts. We are all capable of creating wealth even out of thin air and that is the first step to getting our creative juices flowing.
The value of anything is defined by supply and demand.
You don’t need to be a Major in economics to understand this. Money is just an idea. Remember the desert island example? The true measurement of money is not the cents or dollars it represents. If you have developed a product that people want, would they pay more to you than usual? Would you apply your skills in creating good assets?
Bottom-line is this:
Invest in assets that bring long term value. Anything that brings you more income is an asset. Don’t invest too much in liabilities like cars or boats. Even houses are not considered assets until they are fully paid off (If you lost your job tomorrow and you can’t pay for your house, is your house an asset or liability?)
Are you willing to step out of your comfort zone and pay the price for financial IQ or ignore the signs of the times and expect your boss, the government and the bank to take care of you financially for the rest of your life, living below your means and never taking risks to better your family’s future?