11 Truths About Money From Wealthy People That You Must Know

Money plays a critical part in our lives. It influences our choices, opportunities, and even our overall well-being. Despite being this vital, many people go through life without ever learning about money. One critical difference between the haves and have-nots is their financial literacy.

Billionaires and many other wealthy people understand money and this article summarizes some of their perspectives on the true nature of money. These perspectives are acknowledged by many other financial experts hence we call them money truths.

Embracing these money truths sets you on a new course in your interaction with your money and helps you achieve your financial goals.

1. Money is a Tool, Not the End Goal

It’s easy to fall into the trap of thinking that accumulating wealth is the ultimate goal. However, money is merely a tool that helps us achieve our goals and live a comfortable life. Focus on the experiences and fulfillment that money can bring, rather than viewing it as an end in itself.

“The goal isn’t more money. The goal is living life on your terms.”

– Chris Brogan

Just like a car needs to be driven, your money needs to be directed. You can use your money to attain your goals, make an impact, or even experience new things.

When you make money the end goal you become like many people who spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.

money growth

How do you make money a tool?

The first step is to invest in financial literacy. Consuming financial knowledge (like you are) gives you an edge when it comes to making and managing money. Once you have learned about money, you develop a practice of keeping more of it so it can work for you.

“The art is not in making money, but in keeping it.”

– Proverb

It is never make about how much money you make but rather, how much you keep. If you spend more than you earn, then you are money’s tool. But the opposite ensures that you can utilize your surplus to invest and make more money.

2. Expensive doesn’t always mean valuable

Buying something expensive doesn’t always mean that it is better, high-quality, or even valuable. Buying name-brands and expensive luxuries is often viewed as buying value, but it is rarely so.

Sometime back, I wanted to get a new fragrance and like any other person, I searched the web for the “perfect” smell. Despite the fragrance being twice my budget, I decided to try it. It was a well-known brand.

To my amusement, the fragrance barely lasted 2 hours. The one I used before lasted at least 14 hours and was half the cost. I acknowledged this mistake: I mistook expensive for valuable.

“Value is not determined by those who set the price. Value is determined by those who choose to pay it.”

– Simon Sinek

What is value? How to determine value:

Price is what you pay, value is what you get. With luxury cars, you pay a premium price tag to get a car that loses up to 70% of its value within 5 years. Is that value for money? NO.

Value is a combination of quality and meeting your needs. A product that does both is valuable. For a product to be valuable it does not need to be expensive. The two are mutually exclusive. So the next time you’re buying something prioritize value-for-money over brand names.

3. Patience pays, learn this early

Everything good takes time. Jeff Bezos has always advocated for having a long-term vision for everything that you undertake. It is not any different with money. Being patient with money enables you to take advantage of compound interest which Waren Buffett describes as the most powerful force. Compounding depicted in this chart:

“Successful investing takes time, discipline, and the ability to think for the long term. The stock market is a device for transferring money from the impatient to the patient.”

– Charlie Munger

Building wealth takes time

The truth is that building wealth is a gradual process. As Charlie Munger put it, “Building wealth is a marathon, not a sprint”. You need a long-term vision coupled with discipline and consistency. Your eyes should always be on the prize.

In the process of building wealth, you also need to assess risk. You will be tempted to buy the “shiny new toy” that is promising to double your money in 3 months. You need the strength to walk away from anything that does not take you closer to your goals.

In the end, your resilience and commitment will reward you. Wealth is a by-product of consistent and patient investing.

money truth

4. Budget your money

This is cliche but it stands the test of time. Let me give you a new perspective on budgeting:

Budgeting is not about restricting yourself; it’s about allocating your resources wisely. Prioritize spending on what truly matters to you, invest in experiences over possessions, and always leave room for saving and investing in your future.

A well-crafted budget is a roadmap to financial freedom, allowing you to live a fulfilling life today while securing your tomorrow.

“A budget is telling your money where to go instead of wondering where it went.”

Dave Ramsey

Crafting a budget is not about setting rules but rather it is akin to architecting the blueprint of your financial future. It empowers you to align your spending with your values and aspirations.

By consciously directing each dollar toward its purpose, you transform the abstract concept of money into a tangible tool for realizing your dreams.

A well-designed budget should never be viewed as a restraint; but as a liberation—a roadmap guiding you towards both immediate satisfaction and enduring financial security, ensuring that every financial decision becomes a deliberate step on the path to a prosperous and purposeful life.

Attain your goals by monitoring spending

Budgeting becomes easy when you have a financial goal. The goal incentivizes you to watch your spending and track everything. At this point, budgeting becomes an art of financial empowerment, a conscious act of sculpting your financial landscape with purpose and intention.

By proactively managing your money, you don’t just track expenses; you craft a narrative of your values, ambitions, and dreams. You channel your funds in a way that gives you the most utility and also takes you closer to your goals.

A well-thought-out budget is a declaration of financial independence—a tool that empowers you to live in alignment with your goals, ensuring that each dollar spent is a conscious investment in the life you aspire to lead.

5. Write down your financial goals

It is important to have financial goals. A financial goal is something that you are looking up to in your finances. It can be anything from saving for a house to paying off college debt.

Once you figure out your goals, list them from the most immediate one to the one with the furthest horizon. A short-term goal can be something like paying off credit card debt or saving for a wedding. Long-term goals include retirement and paying off the mortgage.

Identify your goals and write them down.

Writing down your goals is like giving a voice to your aspirations – it transforms dreams into tangible plans, making the journey from vision to reality a deliberate and empowered stride.

Revisit your goals from time to time checking off what you have achieved and making any changes necessary. That’s how you focus on your financial life.

“Setting goals is the first step in turning the invisible into the visible.”

Tony Robbins

Set SMART financial goals

The SMART technique is one of the most common tools for goal setting. It is broken down as follows:

  • S: specific
  • M: measurable
  • A: attainable
  • R: relevant
  • T: timebound

When setting goals, use this criterion to ensure that your goal is SMART.

An example of a SMART goal is, you might have the short-term goal of building an emergency fund. You decide to save up $5,000 within 5 months by depositing $1,000 on the last day of each month into a Chase Bank savings account (or money market fund).

Assuming you can afford to put aside $1,000 each month, this goal is specific, measurable, attainable, realistic, and has a timeline. These are the elements of a SMART goal.

Need help setting SMART financial goals? The Consumer Financial Protection Bureau offers a handy worksheet to help you get started.

Combine short-term and long-term financial goals

Identify a good balance when setting your financial goals. Have a blend of both short-term and long-term goals.

Short-term goals energize you, motivate you, and give you a sense of accomplishment while long-term goals help you obtain assets and propel you to financial freedom.

While setting goals, it is always vital to keep educating yourself. Managing money requires financial literacy and knowledge surrounding topics such as budgeting, investing, and risk management.

6. Pay yourself first

The concept of “Pay Yourself First” is simple but powerful: before allocating your income to bills, expenses, or discretionary spending, prioritize saving or investing a portion for yourself. This proactive approach to managing money has the potential to pave the way for financial stability, security, and long-term success.

“Pay yourself first and watch how the rest of your financial priorities fall into place.”

– Author

See also: The rule of 72: How to build wealth

The “Pay Yourself First” mindset encourages you to prioritize your own financial goals before addressing other financial obligations. Instead of waiting until the end of the month to save or invest whatever is left, this principle makes you treat savings or investments as a non-negotiable expense, similar to paying rent or utility bills.

One way to pay yourself first is using automatic transfers from your salary account to your savings account whenever you’re paid.

How to pay yourself first

According to Parkinson’s Law, work expands to fill the allocated time. Expenses also expand to utilize available income. To pay yourself first, dedicate a portion of your paycheck, say 10% to savings before making any other payments.

Let’s assume that you make $3,000 per month and your monthly expenses sum up to $2,500. That means that your disposable income is $500. If your salary is paid out on the first of the month, you can make an automatic transfer of $500 on the second day of each month.

That means that, each month $500 will be wired to your savings account automatically. This builds a savings culture and propels you to your goals.

7. Start investing today

Seamless access to technology and information has liberalized investing. Through consistent investing, anyone can attain the goal of financial freedom.

However, investing by itself doesn’t build wealth. Just like a car can’t move if not driven, investing needs to be driven by your goals.

The two main goals of investing are growth and income. Some people invest solely for growth, others for income, and others aim for a blend of the two.

See this article: Best assets to build wealth with.

“The goal of investing is to put your money to work in a way that it grows over time and outpaces inflation.”

– Suze Orman

It is also prudent to understand that investing requires patience and a long-term perspective. Consistency and strategic planning often lead to greater returns over time.

Using technology to invest

The subject of investing can be daunting. That’s where robo-advisors come in. With the proliferation of AI, it is possible to open an investment account and commence investing swiftly.

A robo-advisor is a computerized system that uses artificial intelligence to tailor an investment portfolio based on your risk tolerance level, gauged by your comfort level with market fluctuations.

Most leading brokerage platforms offer robo-advisor features, often with minimal to no fees for account setup and management.

For those new to investing or uncertain about where to begin; read this article to get acquainted.

8. Frugal doesn’t mean cheap

There are two major types of people: those buy expensive things they don’t need to impress people they don’t care about. Those are extravagant people. The others sacrifice what they need or choose low-quality products. Those are cheap people.

There, however, is a sweet spot in the middle: frugal people. People who buy what they need and choose quality over cost.

Being frugal doesn’t mean being cheap. A cheap person will skip regular oil maintenance to save money but end up ruining his/her engine. On the flip side, a frugal person understands the importance of the oil check and chooses to do it.

“Cheap is expensive in the long run”

Unnown person

Frugality in its essence entails buying quality things without overspending/See this article on Warren Buffett’s guide for frugality

Frugal vs. cheap example

Assume you need shoes for winter. Here’s a comparison of how a cheap and frugal person would go about it:

money growth cheap vs frugal

The cheap person will opt for shoes that are:

  • Uncomfortable
  • Not warm enough
  • Not waterproof
  • Last only a few weeks
  • But cheap!

A frugal person will end up spending more to get better quality and choose shoes that are:

  • Comfortable to wear
  • Warm
  • Waterproof
  • Last for years
  • Worth the money

9. Learn from your mistakes

Mistakes are a normal part of human life. The most important part is learning from them and avoiding repeating them. Mistakes make us wiser.

Many wealthy people aren’t as successful as they are because they have always made the right choices. They’ve also made countless mistakes and turned them into opportunities for growth.

“The only man who never makes a mistake is the man who never does anything.”

– Theodore Roosevelt

The ability to stay focused even as you make mistakes is one thing that distinguishes winners from losers. To win in the game of money, learn from your mistakes and stay focused on your goals.

See also: Common investing mistakes to avoid

10. Keep on learning about money

Some of the wealthiest and smartest people are lifetime learners. As you keep learning it is also essential to apply what you learn and collaborate with others.

“Learning never exhausts the mind.”

– Leonardo da Vinci

By learning and building relationships, you can get new ideas and opportunities to grow your money. Over the past 5 years, I have been part of a community that saves at least 10% of their income and invests it wisely. You can join the community here:

11. Financial discipline is a must

Everything on this list is not important if financial discipline is not applied. Financial discipline is the cornerstone of sound money management, emphasizing the prudent allocation of resources and adherence to a budget.

It involves cultivating habits such as saving regularly, avoiding unnecessary debt, and making thoughtful spending decisions. By practicing financial discipline, you can achieve your short-term and long-term financial goals, whether it’s building an emergency fund, purchasing a home, or planning for retirement.

“Financial discipline is the bridge between goals and accomplishment.”

Jim Rohn

Mastering financial discipline is essential to achieving financial stability, security, and peace of mind. The sooner you cultivate this, the better you’ll be in the long run.

Unlock your financial knowledge with these truths about money!

Now that you have read these eleven principles, the next step is leveraging this knowledge to empower you to increase savings, reduce expenditures, and lay the foundation for wealth accumulation.

In the journey to wealth accumulation, it is important to improve your financial literacy. You can subscribe to our weekly newsletter here for free and well-researched weekly tips to make you healthier, wealthier, and wiser.

See also: How to retire early: A step-by-step guide

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