Learning High Level Financial Intelligence
Windowofworld.com – Have you ever wondered why so many solid businessmen drive dirty old cars from dirty offices, run to offices to their stately suburban homes? Warren Buffet, perhaps the greatest surviving investor, is known for this. The reason they live this lifestyle is not because they are cheapskate but because they have a high level of financial intelligence that you can develop as well.
They understand that if they have $ 90,000, they can put the money in it
1. reduce their debt
2. invest in the stock market
3. selective home improvement
4. Improving the appearance of their business facilities (I assume that this doesn’t have a big impact on their profitability and believe me, it almost never happens despite the excuses managers make for spending money)
5. Buy a new Mercedes Benz for themselves
6. Buy their kids a new car.
The first two options increase your net worth (equity) which is always a good thing and equity is not taxable. The third option increases the enjoyment (utility) of your home. If you remodel your kitchen or bathroom just right, you can increase your equity too. So if you have cash reserves that exceed your debt and are solid investments, a savings plan from this can be a good option too.
The fourth and fifth options are TOTAL wastes of money because your business sits there for you to suck money and nothing else. A car loses a quarter of its value when it is pushed out of the parking lot and then continues downward until there is nothing. Depreciable assets are not investments, they are unwanted financial needs if you can’t walk anywhere you want to go. A car is a need that is not wanted financially, nothing more, no more, no less.
The last resort is the worst possible use of your money. You are not only wasting money, but you are also teaching and reinforcing financial mismanagement in your child’s mind. Your kids learn that they don’t have to work for whatever they want. Even worse they will mentally assign a value to the car relative to the amount of effort it took them to get it and that’s zero.
In Steven Silbigers’ book, The Jewish Phenomenon, he explains in another way why this thrifty yet selectively extravagant concept is the main key to the extraordinary wealth of ethnic Jews. He shows clearly how the Jewish family uses this wisdom to turn their income into eternal wealth. Don’t forget that this policy is not limited to Jews and is in fact a major cause of financial stability in high-income families of low-income ethnicities. The most enduring wealth of course is a debt-free lifestyle with sufficient passive income and the knowledge to make up for it all if lost.