“Knowledge is Power.”
I’m sure you’ve heard that phrase many times in life.
But is knowledge power or is the right knowledge power?
I won’t go as far as saying that what you learned in school was wrong or a waste of time, but honestly, school did not prepare us for the “real world,” especially the world of finances.
That is why Jim Rohn said, “formal education will make you a living, [but] self-education will make you a fortune.”
So, the question is what type of self-education should one get? What should millennials learn about finances in order to become successful in this area? There are 5 very important areas of finances that should be part of your self-education.
1. General Personal Finance
This is an absolute necessity. It is essential that we learn the general financial concepts such as budgeting, money management, debt, credit and savings. These everyday aspects of finances can overwhelm us unless we get the proper foundational education in this area. Having a good handle on your personal finances (your personal economy) is essential if you want to gain an form of financial success.
One of the most important aspects of our financial success is the way we think, especially with regards to money. Resources that delve into “millionaire minds” and “how the wealthy think” are important to reprogramming our minds for success. Regardless of what we do externally, success will elude us unless we set our internal compasses for success.
3. Accounting and Financial Statements
“You have to understand accounting. It’s the language of business. Unless you are willing to put in the effort to learn accounting – how to read and interpret financial statements – you really shouldn’t select stocks yourself.” – Warren Buffet
Ultimately, you will want to stop having to work for your money and will want your money to work for you. That is investing. However, you have to crawl before you walk. This step is basically a preparatory step for point #5 below. You don’t have to become a CPA, but if you want to eventually become financially fit, it is important to develop a general understanding of accounting and of how financial statements work.
4. Markets and Economics
Once you understand accounting, there is still one more preparatory step you will want to take before delving into investing. You will want to develop a solid understanding of how the general market works. You will want to learn economics.
Again, you don’t have to “master” this and get an MBA or degree in economics. You need to understand how markets affect investments and what impact certain changes in the market should and should not have on your investment decisions.
Now comes the fun part! You’ve laid the foundation and are ready to learn how to make your money work for you. Starting with a few resources that will give you a general understanding of investing as a whole. In other words, some straight-forward materials on stocks, bonds, real estate, etc.
Now you specialize. Pick the type of investing that best aligns with your goals, style, and preferences. Become a master in that field. Learn whatever you can about your area and begin to prepare for investment success.
So, is education important? Absolutely. But the education we got in school is not enough. To be financially independent, it is important that millennials learn the areas of finance that will have the biggest impact on their financial futures. Personal finance and mindset education will lay the foundation for general success. Accounting and economics will prepare the way for future planning and investing. Finally, education on investment will help you achieve success in this area and will help to minimize your losses. Overall, education is essential. And the right kind of education is necessary for future financial success.