The Truth About How Money Works
You are not to blame for not understanding about money and wealth. It is not your fault that you have not been taught about financial education.
On the other hand, it is 100% your responsibility to learn about money and wealth and how to behave in relation to money and wealth.
It is not your fault not knowing something, but it is your responsibility to find out how to learn.
Accepting this is the first step towards your mature financially and understand how money works.
After all, we can not win a game we do not understand.
Adult Santa Claus
Surely you know the story of Santa (who does not know!).
The good old man walks into your house through the chimney (even if you do not have a chimney), leave your gift and leave with your reindeer to leave the other gifts for all the children of the world.
While you are a child, it is very healthy to believe in Santa Claus. In addition to feeding the child’s fantasy (which is important), it can still serve as a stimulus to maintain good behavior and be an exemplary child.
The problem is that many children grow up, become adults, but still think things will continue “falling from the sky.”
They believe that, at some point in time, the financial problems will be solved. They believe they will win the lottery or receive an inheritance from a wealthy family they do not even know.
They believe that your manager will indicate the best investments for you or that they will have enough money for retirement.
The first step to financially mature is to stop believing in this “Santa Claus” and start taking on responsibilities.
As I mentioned at the beginning of this article, you are not to blame for not understanding about money, but it is your responsibility to learn about money and how to behave towards it.
Four Paradigms of Money
The book Rich Dad, Poor Dad is a watershed in the financial life of anyone.
If you have not read yet, read. This is a must-read.
With pretty simple language, you will learn the basics about how money works.
Basically there are four paradigms of money, which I will explain each one later:
- Get money;
- Earn money;
- Make money;
- Invest money.
Paradigm # 1 – Getting Money
This is the most basic model we learn when we are still children.
You want to buy something, then go to your father or mother, ask for money and he gives you. Then you get the money easily and immediately.
The problem is that many people live in this paradigm even after adults.
When they want to buy something, they simply borrow the bank, make a loan, or divest assets at prices well below the market to get the money right away.
Those who live based on this model will never accumulate wealth and will probably have many debt problems.
Paradigm # 2 – Make Money
This is the model that most people live because it is how employees and freelancers deal with money.
In this paradigm, you learn that it is possible to exchange your time and effort for money. And so he does daily, devoting his time and effort to work and receiving money at the end of the month.
In other words, you make money in exchange for your time.
With a little financial education, it is possible to stay away from debt. But it will be difficult to accumulate wealth if it remains only in this paradigm.
Paradigm # 3 – Making Money
The moneymaking paradigm is usually linked to a business of its own.
Although you work in the business (‘spend’ time and effort on it), you also buy the time from other people, which in turn, generate more money than you spend on them.
In other words, the financial result generated by your business is higher than the expenses with salaries of employees and other expenses.
It is easy to understand that it is a more efficient and intelligent way of dealing with money.
Paradigm # 4 – Invest Money
This is the best existing paradigm and few people know how it works. Although they hear about investment every day, they think they understand, but they do not put it into practice.
This paradigm works as follows:
- You use your money to acquire assets;
- These assets are valued and often generate a monthly passive income;
- You hardly need to spend your time and effort with these assets.
A very clear example is investment in stocks.
When well chosen, a stock appreciates and still generates dividends for you.
Another very common example is an investment in real estate (for rent).
When bought intelligently, this property tends to appreciate and still generate monthly financial return through rent.
Ultimately, if you invest in any asset that values itself over time and generates passive income, you are in this paradigm.
If you notice, anyone who can accumulate wealth has his financial life turned to acquiring assets.
Conclusion – Recapping …
I say and repeat for the third time: you are not to blame for not understanding about money, but it is your responsibility to learn about money and how to behave in relation to money.
In this article, even without going into detail, I explained the four paradigms of money:
- Get money;
- Earn money;
- Make money;
- Invest money.
I mentioned two examples to invest your money (financial investments and real estate), but there are several other alternatives.
Investing in financial investments may not be the most profitable way to accumulate wealth, but it is certainly the easiest and it is within everyone’s reach.
Lastly, I am sure that this article will be of great value to your financial life if you decide to take on your responsibility to learn and change your behavior in relation to money.
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