Money – make a choice

Introduction

Today we’ll be starting our discussion about money.  Some of us hate it, some like it, bottom line is we all need it.  Money buys us free time – the time to do exactly what we want when and how we want. It’s unfortunate that the traditional school system taught us very little about money.  As a result, most of what we know we learnt from our parents or picked up along the way.

Recommended read

Rich Dad Poor Dad by Robert Kiyosaki.  It’s about what two fathers told their two sons about the subject of money.

Mindset

Those of us who have a good relationship with money aren’t smarter or better than those of us who don’t; they just go about things differently.  Having a good relationship starts with having the right mindset.  At the end of our discussions we’ll have to decide how we want to think in order to move forward.

To improve our relationship with money , for example, we’ll have to learn how to make money work for us; we’ll have to learn how to interpret our personal financial statements.  Yes! That does mean some math will be involved but no need to be frightened, we’re Keeping It Super Simple (KISS).  Our ideas form our reality so we’ll need to change how we talk to ourselves.  For example, instead of saying “We can’t afford it” instead ask “How can we afford it?”.  It’s all boils down to a change in mindset.

It’s important to interpret our personal financial statements because we will learn the distinction between an asset and a liability.  Using the Rich Dad definition, an asset is something that puts money in our pockets whether we work or not and a liability is something that takes money out of our pockets. For instance, our car is a liability, whereas if we use the same car to operate as a taxi service then it can be an asset.

Then vs now

The way in which the world works has changed.  We were taught to go to school so that we can get a safe and secure job and stay with that company for the rest of our working life.  When we retire, the company would take care of us for as long as we may live. However, we’re now seeing where this is no longer a sustainable formula.

We’re now seeing companies change the way they operate.  We went to school as we were taught, some of us struggled to get a job; many of us ended up working on contract and weren’t placed on permanent staff.  Moral of the story – fewer and fewer companies are caring about us for the long haul.

In Jamaica, for instance, there has been a mass movement away from defined benefit to defined contribution plans.  There are many distinctions between the two.  In a defined benefit plan the majority of the risk is borne by the employer whilst in a defined contribution plan the majority of the risk is borne by the employee.  Therefore a switch to defined contribution plans implies that our retirement are in our own hands.  At normal retirement age (say age 65), if we have no money, it’s no longer the company’s problem.  Research has shown that we are living longer and face the risk of debt during our retirement.

Another side of the coin is that we’re in a pensionable position at our jobs.  So we’re promised a pension for life on our retirement.  Let’s say our salary at retirement is J$3,000,000, our pension will only be a fraction of this amount.  What does this mean?  Leading up to retirement we would have gotten accustomed to a $3,000,000 lifestyle.  On retirement, we’d need to figure out how we’re going to live on a fraction of that amount given that cost of living isn’t decreasing.

How can we survive?

Some of us can marry for money or win the lottery but if those aren’t viable options, we could try education.  In addition to the traditional  education that we received in schools, we also need financial education.  Money 101 – KISS (Keeping It Super Simple) is about providing the financial education that we weren’t provided with in schools.

Everyday we have a choice.  Make a wise one though it may not be the easiest choice.

Kaynijo.com

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