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Often we are bombarded by wisdom from our elders regarding the way to go about creating wealth, making financial success and creating financial freedom especially from those older than us. It is incredibly important to understand that the ways in which our financial world has changed over the last 30-50 years is drastically different to our current environment.
Here are a few key changes to take into consideration when receiving solicited or unsolicited advice or opinion from those around you:
1.) “You need to save not invest” : This is perhaps one of the most harmful opinions to new age youth whereby they are encouraged to save their money in a bank and avoid investment markets such as equities and bonds. Especially post the Covid-19 pandemic we find ourselves in a high inflation environment, meaning the cost of goods are dramatically rising each year. “The issue with merely saving money in a bank account is the lack of interest you will earn on your money, most the time being below inflation meaning you are actually going backwards” says Pierre Van der Merwe, a financial advisor from Cape Town, South Africa. Over decades traditional investment markets such as equities ,property and bonds have performed at solid inflation beating returns. It is very important to put your money to work, and to ensure you are outperforming inflation.
2.) “Buy a home and pay off your mortgage as soon as possible” : This is another limiting belief that was far more popular in the 1980’s and 1990’s. Since then we have an array of investment options available to us, as well as lenient credit options, most of the time individuals do not take into consideration all the other costs of being a home owner. As the saying goes “do not put all your eggs in one basket” , trying to settle your mortgage is an admirable feat, but not always the smartest thing to do. You want to diversify your disposable income into other growth generating assets and investments which can outperform the interest rate you are paying on your home loan over the long run, examples can be stock exchanges which have performed at over 12% per annum since inception. It is important to take this into consideration.
3.) “Credit cards are bad” : Especially in recent years, your credit score has become an incredibly important aspect if you want to finance assets or take out a home loan. It shows you have the capability to pay back debt and this can effect how good of an interest rate you get. Besides the above, many credit cards now come with rewards which can actually work in your favour. The key however is to not fall into unnecessary bad debt, and to manage your credit card to have it support an improved credit score.
4.) “You are too young to start investing” : This is a devastating limiting belief which was also popular decades ago. As technology and ease of access to financial education and investing has become available it is now possible to seek the expertise of a financial advisor or simply DIY investment platforms which provides access to stock markets and the like. The difference of starting investing at the age of 20 and the age of 30 is dramatic as the effect of compound interest is one of the most powerful elements in building long term wealth and financial success. Its of utmost importance to begin investing from as soon as you can afford to do so.
It is important to keep these basic tips in mind when receiving advice from your elders or peers.
