# Why money management matters

Money is necessary to do nearly anything with other people.

- Money is a relative, absolutely measurable form of [power](power-types.md).
- It stores [value](economics.md) in the form of [influence](people-3_respect.md).
- The amount of money you have measures approximately how much value you've added to others' lives.
- However, money is only as valuable as other people interpret it to be (i.e., what other people can actually do).

Our availability of money is closely connected to our [people skills](people-1_why.md).

- More people means we spend more around them, but also that more money becomes associated with us.
- The money you make pales in comparison to the money circulating *because* of you.

While money is directly measurable, wealth is a completely relative concept:

- People are only "wealthy" or "poor" based on how they compare themselves.
- Living in complete luxury in many parts of the world is cheaper than living adequately in the United States.
- Often, a life-changing adventure for a long time costs less than a year's salary (e.g., sailing around the world for 15 months costs ~$18,000).

## Money isn't an immoral thing

*Loving* money is the root of all evil.

- Money is the power to get or do things.
- The money itself simply magnifies our [results](results.md).

We always manage money toward our [desires](purpose.md) and [what we value](addiction-centers.md).

- More money shows someone's priorities.
- If we can't manage a little, we'll mismanage a lot.
- When someone has [a vision](success-3_goals.md) for what they want, they'll save, irrespective of their life circumstances.

We naturally find [happiness](mind-feelings-happiness.md) when we successfully save for a goal we want or serve a non-money-related purpose.

## Poor money management destroys lives

When we react to feelings or interpret a crisis, we mismanage money:

- We *do* need to manage a legitimate crisis, but it's often not the most efficient use of our resources.
- Impulsively buying things is harder to resist when we're [stressed](mind-feelings-happiness-stress.md).
- We only focus on the present when we don't expect the future to come.

Long-term money mismanagement creates disastrous consequences:

1. Poor budgeting creates chronic stress and anxiety over any major life event.
2. No savings inhibits investing in good ideas or lucrative endeavors, but also magnifies [hardship](hardship.md).
3. Poor money management is one of the most common causes of divorce.
4. In the long term, poor money management makes people victims of their circumstances and eventually of others who *do* manage money.

Proper money management is necessary for both your wellness and the safety of everyone who depends on you.

## Everyone needs money management skills

You can't out-earn reckless spending habits.

Proper money management simplifies life:

- Self-managed money gives power and control.
- Well-discussed budgeting eradicates money [conflicts](people-5_conflicts.md) in [marriage](relationships-marriage.md).
- Purchasing staple items won't cause guilt, shame, or fear.
- Good management directs money toward future goals and dreams.
- Unexpected events become far less traumatic.

Wisely managing money feels like getting a raise.

- Saved money is *more* than earned money because it isn't taxed.

Saved money can let you exploit the powers of compound interest:

- Assuming the same rate, [investing](money-investing.md) a lump sum and waiting 40 years will always yield a higher return than investing that same amount across 20 years.
- On the other hand, a credit card borrower making a minimum payment will often pay 5--20 times the original debt by the time it's paid off.

### People should prioritize giving money

The most moral giving should be on something that doesn't benefit the person giving:

- Most people have trust issues because they're afraid of losing money.
- Giving or not giving money is a highly spiritual experience, since it reflects our higher values.
- Owning more wealth than we naturally need is, in many ways, a waste of resources.

Scientifically, we get the most [happiness](mind-feelings-happiness.md) out of our money from helping others.

- Even when we're doing terribly, we have enough to at least *help* someone else.

*Not* needing money is more valuable than wealth itself:

- Wealthy people require constant maintenance of their possessions.
- Money and possessions may give *some* satisfaction in life, but we get much more out of things like [meaningful friendships](people-4_friends.md), [personal achievement](success-1_why.md), [inner satisfaction](mind-feelings-happiness-focus.md), and the freedom to [make choices](people-decisions.md).

## The portrayal of wealthy lifestyles is wrong

Pop culture portrays an inaccurate demographic of millionaires:

- Late 20s to mid-30s without children or adult children are heavily dependent on parental support.
- Makes a very high income from a prestigious trade (e.g., [attorney](legal-doctrines.md), [stockbroker](money-investing.md), [artist](creations.md)).
- Works 60+ hours a week or less than 30.
- Later-generation affluent, usually as an heir.
- Drives the newest cars and has many expensive hobbies.

Statistically, most millionaires fit a more humble profile:

- Late-50s and married with three children, all of them economically self-sufficient.
- Self-employed in a practical business that supplies practical needs.
- Typically *not* retired and works 45--55 hours a week.
- Skilled at targeting market opportunities.
- Well-educated enough, often with a [college](jobs-college.md) degree.
- Allocates time, energy, and money efficiently to effectively build wealth.
- First-generation affluence, with an average net worth acquired slowly over time of $3.7 million.
- Invests an average of 20% of their median household income of $131,000.
- They never play the lottery and avoid [debts](money-2_debt.md) they can't quickly pay back.
- Live well below their means:
  - Owns a [home](home-buy.md) worth about $350,000.
  - Buys older-model [automobiles](autos.md) and never leases.
  - Attended public schools, but likely sent their children to private school.
  - Still clips coupons and looks for discounts.
  - Lives a lifestyle that doesn't show their wealth.
  - They bought their home once they'd amassed about four times its value in their net worth.

*Anyone* with the discipline and determination to change their spending habits can become a millionaire.

## The wealth-building "secrets" are a few core concepts

If you fully understand a few concepts, everything else is gradations of detail:

1. Keep a healthy distaste for debt and instant gratification.
2. Spend less than you earn.
3. Curb reckless spending.
4. Save, invest, and give away everything you can.
5. Research everything you pay for.
6. Only spend on what you understand.
7. Stay [hyper-aware](awareness.md) of "want" versus "need".
8. [Make your money work passively for you](money-investing.md) when you're not working.
9. Give *much* more to others than satisfying yourself.
10. Find legal ways to avoid paying taxes.
11. Fight against [all risks](safety-riskmgmt.md) and [delegate the risks](money-insurance.md) you must take.

Learning about money is one of the most significant investments you can make.

Understanding money management is easy, but we need self-discipline to properly do it:

- Determination: focus creates success through changing a lifestyle.
- Long-term-oriented: We consume more and invest less when we don't say "no" to our present self.
- Optimistic: you must believe you'll attain your goals and things will work out because you're defining your future.
- Realistic: "get rich quick" is only possible with tremendous sacrifice, and you probably won't hit your goals.
- Practical: certain chances to save money can dramatically sabotage opportunities.
- Patient: wealth comes through many small victories over a long period of time.
- Grateful: we spend less when we're thankful for what we already have.
- Independent: social status is subordinate to financial status.
- Tenacious: spend less time thinking about the future and more time working toward it.
- Open-Minded: You need to see opportunities to take advantage of them.

To live well, we must also practice a few other out-of-the-box habits:

- [Pray](spiritual-exercises-prayer.md) consistently and expect unexpected things to happen.
- Whenever possible, produce more than you consume.
- Ignore what everyone else is doing, and have pre-planned responses for others.
- Invest in your [career](jobs-1_why.md), [mind](mind-memory.md), strength, and [health](body-4_health.md).
- Be prepared for [high-risk investing](money-investing.md).
  - Only rich people can live on and invest interest income.
  - Even a high income doesn't guarantee a high net worth.

Avoid the cyclical trap of serving your lifestyle:

1. A job creates income.
2. That income forms a lifestyle.
3. The lifestyle creates financial obligations.
4. The obligations make the job necessary.
5. Get a higher-paying job and repeat.

Before discussing the mechanism, there are *many* misconceptions about [financial slavery](money-2_debt.md).