7 Tips to Remain Financially Intelligent

Do you sometimes see how "richer" people spend their money and think to yourself, that's very wasteful, if I ever had 'this' amount, I would spend my money wiser? We sometimes find that as we grow older or start earning more, we start making financial decisions that our younger, less wealthy selves would not approve of. It almost seems as though as we get older, the information we had before becomes outdated or we forget them or we overlook their importance.

What is Financial Intelligence?

I would describe financial intelligence as personal or contextual (for organisations) understanding of how to make (earn), keep (save), grow (invest), improve and manage one’s finances to meet set goals and desires.

While I think that there is no universal standard of what financially intelligent decisions everybody can take; because, what is financially intelligent for one person to do, may be financially irresponsible for another person; I also think there are some general principles that we can adopt to help us stay on track. Here are those 7 tips:

DON'T FORGET THE BASICS

As you advance in your financial journey, and you start learning about the more complex Finance stuff, we might tend towards forgetting the basics because they may seem “too simple”. But here’s the thing, (Personal) Finance is just a set of really basic simple principles. If you understand those principles, you can understand any other thing there is in personal finance, and more importantly, all the seemingly complex things you might/would learn later on build on those basic principles.

Don't forget the basics.

Be aware of a phenomenon of “LIFESTYLE INFLATION”

Lifestyle inflation is when you start spending more than you need because you have more money at your disposal. The saying “more money more problems” comes into play here. While I don’t believe you necessarily get more problems when you get more money, there is some truth to the saying. The more money you get, the more you get exposed to things you did not previously know about or desire. When you get there (I say when because I am certain that you will), remember the basic financial principles that you’ve already known and try not to spend lavishly on liabilities. Retain the sound financial principles you had when you had 100,000 when you get to 10m. Expand on the application of those principles of course, but as I said earlier, those principles do not really change so retain them.

Don't spend more than you need to, to sustain a lifestyle that will not make you happier.

Keep Learning

Although the basics never really change, the application might change. For example, I was listening to this book “The Way to Wealth by Benjamin Franklin” earlier this year, and he was talking about how debt is bad and should be avoided. While this made sense in the times he was describing; it is not the whole picture. As we learnt in this article, debt is not always bad. Debt (leverage), if used the right way, can be beneficial. So, while the principles remain the same, know that the application might differ. Principles are universal, but their application is contextual. Keep learning about different contexts.

In today's climate, we do not always NEED to read many books or spend large sums of money we don’t have to learn. If you’re not a reader, you can watch YouTube videos or read shorter articles for free online etc. Also, a lot of personal finance is really just knowing your options, common sense and math. If you can sit for yourself and think about it and run the numbers, you’ll get it.

You do not need to be rich or wait till you get rich before you start applying financial intelligence

Financial intelligence (like cooking) is a life skill. Irrespective of the tax bracket you are currently in, you need to begin applying what you now know in the way that best suits your current financial situation. If you wait till you get rich before you start implementing things like saving, investing etc., you may never start. Because the truth is, being rich is not a destination. What would you define as rich? Do you know the wealthiest people in the world are still looking for opportunities to grow their wealth? You can start where you are.

Also, compound interest favours time and consistency more than the amount at your disposal so start where you are and build up from there.

Never let Greed be the ruling motivation behind taking a personal finance decision

Greed can make you a lot of money, but it can also lose you a lot of money. Greed can sometimes blind us from objectively weighing the risks of taking a financial decision. It takes discipline to stop and weigh the risks when faced with investment opportunities or businesses offering to double our money in a short time. Build that discipline.

Don’t take on more risk than you can cope with. Start small and build your risk tolerance. If you take too much risk as a young person or as a person that is just starting out investing and lose a lot of money in the process; you might not be able to pick yourself up and give investing another try.

Don’t let your greed take you where your knowledge, bravery, and money cannot sustain you.

Take calculated risks

In Finance, we are taught that there are 3 kinds of risk appetites: risk-averse, balanced and risk-takers. Don't be afraid to take risks but do the calculation before taking those risks. Seek out opportunities that fit your risk appetite. Take the risk that you are comfortable with.

Finally, Use financial intelligence and frugality as a means to an end

There is no point in saving/investing all your life and never enjoying your money at all. Financial intelligence is not the goal. The goal is financial freedom. As you aim to get freedom, treat yourself every now and then. It's easier to convince yourself to keep saving & investing when you can see the benefits. Reward yourself.