Financial Gravity: Don’t Let It Pull You Down
Where did you learn to manage your money? I believe most people would not be able to recall exactly where they “learned” to manage money. An unfortunate fact about our society is financial intelligence tends to be a taboo subject that not many freely speak about. As a result, the majority of people do not manage their money, it manages them- working to live and living to work for the next paycheck. Here inlies the rub- lack of basic financial knowledge being taught simply perpetuates this epidemic. Financial education is the key to escaping this frenetic “rat stuck in a wheel” way of living. In addition, citizens of the US are too accustomed to having large amounts of consumer debt from finance things that one truly does not need. A cycle of living beyond one’s means, and racking up loads of consumer and student debt lead to a life of financial servitude. You live to make your next dollar to give to someone else. Although this may sound like a doom and gloom outlook on the world, it is the unfortunate reality many of our peers live in. Readers, be not afraid- I will introduce you to a concept that will help you make money decisions that will help you elevate your bank account and brighten your future.
“A cycle of living beyond one’s means, and racking up loads of consumer and student debt lead to a life of financial servitude. You live to make your next dollar to give to someone else.”
Gravity, A Force of Nature
Isaac Newton sat under a tree in the 1600s and proceeded to be struck with an apple- thus discovering gravity. Gravity is a force that pulls all objects that have mass closer to one another. In the case of humans on earth, we know it as the force that causes all things to be pulled downward. There happens to be another natural force that acts on your money- Financial Gravity. Financial Gravity refers to the downward pull that poor financial decisions have on your Net Worth. These decisions make it more difficult for you to reach your goals with money.
What is Net Worth?
Your Net Worth is the total amount of assets you have minus the total amount of debts you have. Do you track your Net Worth? I absolutely suggest that you do. It is imperative that you track your Net Worth at least monthly in order to assess the progress you are making in your financial journey. As you acquire assets that have value, your Net Worth will increase. Making more money does not necessarily mean your Net Worth is higher. If someone makes $200,000 per year and spends all of it, their Net Worth is still zero. Unless the money is spent on assets that hold value. Also, debt decreases your Net Worth. It is possible and common to have a negative Net Worth. That is, if the amount of assets one has is less than the amount of debt they carry. Being cognizant of the Financial Gravity concept will help your Net Worth grow.
Financial Gravity and Net Worth
If your goal is to eventually become financially independent, this is a concept you must understand and incorporate into your daily life. Decreasing your Financial Gravity will be key to increasing your Net Worth on a consistent basis. Financial gravity is increased when you acquire goods that go down in value. Also, carrying debt increases your Financial Gravity due to the interest accrual on the debt. The more money that is lost by committing to these types of financial behaviors make it exponentially more difficult to become financially independent. You lower Financial Gravity by acquiring goods that go up in value, or appreciate.
Appreciation Versus Depreciation
Appreciation is a term for items that increase in value over time. Spending your money on these type of items will turn your money into more money as the years pass. This makes the path to financial independence easier- especially as more time elapses. The opposite is true for depreciating assets. Depreciating assets require a monetary commitment upfront that then loses value over time. Acquiring more of these types of assets will make it increasingly difficult going forward to increase your Net Worth. Examples of items that appreciate include stocks, mutual funds, real estate, and precious metals. Items that depreciate like cars, technology, clothing, and other consumer goods will turn your money into less money over time. What’s more, using debt to acquire these items is a double whammy because not only are you acquiring depreciating assets, you are using debt to buy them and therefore paying interest. These are examples of items and behaviors that will increase your Financial Gravity.
Decrease Your Financial Headwinds
I urge you to become comfortable with the concepts of Net North, appreciating versus depreciating assets, and Financial Gravity. What do you currently have your money committed to that affects these? Unload things in your life that not only starve your joy, but also rob you of a prosperous financial future. Interested in learning more regarding all of these concepts? I would love to hear from you and take your questions at iFireFinance@gmail.com, Or on Instagram at iFireFinance!