I love memes, much to the frustration of my girlfriend. I will often show her memes and she will simply reply, “you’re dumb” but with a smile on her face. I wouldn’t go as far as to say I’m obsessed with memes, but I do look forward to Tuesday so that I can look at the latest edition of Tolkien Tuesday on Memebase.
Although I look at memes primarily for amusement, they can also be used to convey ideas quickly. In the age of scrolling, people don’t like to read long articles unless it is something they are passionate about. Instead, people like to get quick hits of amusement. It’s fascinating how language develops over time. Centuries ago people would communicate through pictures, which then evolved to written language, but now with the proliferation of emojis it could be argued we are seeing a rapid change to a hybrid style of communication mixing up alphanumeric characters with pictures or gifs. This does not even take into account the feature of “stories” which are a major part of many social media platforms.
So, back to the focus of this post. I want to share a few finance related memes.
The first major lesson I learned when I started my FIRE journey was the need to pay yourself first. To someone who is new to financial education this can be a difficult mindset to adapt to. Paying yourself first is exactly what it sounds like; when you get money the first thing you do is invest some. Then, whatever is left over is what you have to survive on. Obviously, there has to be a reality check. The average person is not going to be able to invest 90% of their salary. However, by paying yourself first it is possible for someone on an average UK salary to invest more than 10% of their salary. Paying yourself first means that you have to learn to budget effectively. If you approach investing from the opposing perspective, you will probably find that your money has a way of being spent on other things. This is why I’m not a fan of waiting until the end of your pay cycle and investing what is left. Money that is not managed tends to disappear. Granted, I earn above the UK average salary, but I managed to invest more than half my salary each month. This is possible because I pay myself first and budget how to spend the rest of my money. I’m not living a miserable, frugal existence. I don’t have kids or a car which are two huge expenses. If I had kids or a car, it would be very difficult to pay myself first. I’m not attacking those people who choose to have children, but unless you are earning a very good wage, you are not likely to achieve FIRE with children much earlier than a normal retirement age.
Some basic research online shows that there are many people who lack an emergency fund to cover an unexpected bill, such as a car repair or replacement of a fridge, for example. Often, these people will turn to credit cards. However, if the person lacked an emergency fund, paying on credit card is just kicking the can down the street. If you can’t pay an unexpected bill, then you may very well struggle to pay the credit card bill when it comes in. This compounds negatively against you and could be the start of a financial crisis.
If you have more money going out than you have coming in, then you are in an unsustainable situation and you should seek help from StepChange or the Citizens Advice Bureau. For some people this is just a stark reality and there is literally no more cloth that can be cut. There are other people who spend more than they have coming in purely because they are awful at budgeting. Some warning signs are when people say things like, “it’s only money” or if you see they have multiple credit cards in their wallet or purse. These people need to sit down and have an honest review of their finances. There is a fantastic book, The Richest Man in Babylon, which goes into the basics of budgeting. Although it is set in the distant past, the lessons taught in the book are timeless.
This is something that frustrates a lot of people, but there is seemingly no sign of it changing. I get why schools teach the fundamentals of science, maths, language and so on. There is just not enough attention given to how the adult/real world works. In school you are largely sheltered from the brutal, relentless nature of our society. It is one bill after another, and one demand on your time after another. The systems that govern banking, utilities, taxes and tenancy agreements (to name just a few) are a complete mystery to many kids as they leave school. If I was the sort of person who believed in conspiracy theories, it would almost appear as though the system was designed to keep the lower social classes in their place whilst protecting those in the higher, ruling classes. I’ve stated a few times that money is a game, and if you do not learn the rules you will continue to lose at the game of money.
Think back to your childhood to times when money was discussed. Was it discussed openly and without reservation, or a sense of shame or embarrassment? Over the last few years I have spoken to a lot of people about their experiences with money and the stories told are largely the same, in that money was not an acceptable topic of conversation. It is almost like a form of societal indoctrination, in the same way that employers tell workers not to discuss salaries with each other. It’s simple divide and conquer; hammer the point home repeatedly that money is not a suitable, appropriate subject of discussion and eventually people will be conditioned to believe that. Then, those who come from poverty, or the working class, will be deterred from learning the rules of the game which would allow them to climb the socio-economic ladder.
Another lesson I learned early in my financial education was that you should not use your money to buy luxuries. Instead, you invest your money so that your money works for you. In simple terms, your money makes more money. This return on your money can then be used to buy your luxuries. Let’s look at it another way with an example.
You have a mortgage of £50,000, on which you pay £800 per month. You can afford your mortgage payments without too much of a struggle, but you are eager to pay the mortgage off as soon as you can. You come into some money, say £100,000, from an inheritance. Your first thought is to pay your mortgage off. However, if you do that you will have spent £50,000 that you are not going to get back. Granted, you no longer have to pay your mortgage which saves you £800 per month. If you were to put that £100,000 into a low cost, passive investment returning 5% (a pretty conservative estimate as of today), your £100,000 would earn you £5,000 a year. You could use these proceeds to help pay your mortgage off faster, and when the mortgage is paid off you have preserved your capital. The £5,000 you are earning from the investment from this point on can be used to buy luxuries such as holidays, or a new car, or you can reinvest the income and let it compound over time.
The key to financial independence is building a foundation where your money is making enough money for you to live on. You don’t achieve this by cashing in your investments or depleting your capital reserves. The key is to invest your money so that it works for you. Each pound invested is like a seed that you have planted, which over time will grow into a virtual money tree.
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