Everyone here has a certain financial intelligence. But we also know that it is not a gift that we gain at birth and that we maintain for life without doing anything. In fact, if you are reading my blog, it will be because you are interested in learning more about personal finance.
Maintaining and improving our financial intelligence needs continuous attention. To deal with this topic, I have invited Andrés Monsegny, from the CyberHuaca blog. Next, he is going to present us with 5 different ways to do it.
Financial intelligence is the ability to understand how money is used, according to Wikipedia. It is the ability to solve financial problems, according to Robert Kiyosaki. If you ask me, financial intelligence is the ability to achieve financial goals .
In this article we are going to see 5 ways to increase that capacity, both to understand how money is used, how to solve financial problems and to achieve your goals.
The prerequisite to be able to improve financial intelligence.
Before starting, it is very important to have an interest in improving this ability.
A few months ago my aunt called me to ask me to advise her daughter-in-law. Her daughter-in-law is full of debts , and shows no signs of progress in her material life. So, my aunt is a bit frustrated by the daughter-in-law’s lack of progress. Despite the affection I have for my aunt, and the fact that she offered to pay for the entire program, I did not accept the commission.
I told my aunt that the person who takes the advice should be the same person who pays for it and who seeks the service, because it means that they have a genuine interest in improving. But the daughter-in-law gives no sign of wanting to change the situation. In fact, living with debt and no savings is a normal situation for millions of people.
In short, the prerequisite for improving financial intelligence is an interest in changing some aspect of the current situation. Without this strong interest, no one will make the effort to learn and, above all, to change habits.
Yes I am interested!
Now that we know you are interested, let’s get started.
The multiple dimensions of financial intelligence
Financial intelligence has components in multiple dimensions, not just numbers or financial theory. I know VERY closely cases of totally brilliant people in technical financial fields, but in the aspect of personal finance, they do not have the emotional intelligence to solve their financial problems or achieve their goals.
It is often said that to improve your financial intelligence, 20% corresponds to knowledge and 80% to changes in habits.
Hence, the ability to self-observation is super important:
- What are your deepest beliefs about money? If you believe that money is the source of all evil and that all rich people are evil and ruthless, rest assured that you will not be rich or have much money, because your beliefs keep you away.
- How much capacity do you have to delay gratification? If you go through a mall, are you able to resist the temptation to buy the latest iPhone?
- If you make a budget, how willing are you to stick to it over the next few weeks, months, and years?
Way #1 to improve your financial intelligence: self-knowledge
You may be surprised to see so little academic ability in the number 1 spot. But it is one of the most important to be able to observe your deepest beliefs, attachments and traumas , of which you are probably not aware.
To achieve deep self-knowledge, the capacity for self-observation is essential.
Let’s do an exercise right now
As you finish reading this paragraph, close your eyes. Imagine that you receive a call to your mobile. You hear a very sweet female voice. She is the adviser of your bank. She calls to inform you that they have just issued a new credit card with a quota of 30,000 euros and she wants to know what address they should send it to.
Observe your physical sensations. Do you feel your body contract and slouch in disgust because a card is issued without your consent? Do you feel your body expand from the joy you have knowing that you have access to more money? Do you feel tension when thinking about the interest you will have to pay?
You can open your eyes now.
I have done this exercise with dozens of people and came to one conclusion: everyone feels something different. There is no right or wrong answer. I simply invite you to observe your reaction and try to understand what causes it.
Once you know your beliefs well and especially your limiting beliefs, and replace them with beliefs of abundance and prosperity, you will be ready to continue on your way. I firmly think that advancing in technical knowledge, without having a deep understanding of your being, is not easy, if it is even possible.
If you are interested, a great way to delve into self-knowledge is meditation.
Way #2 to improve your financial intelligence: reading
The first way we are going to start is reading, naturally. And it is because of the following: the most important experts in each area of knowledge (scientists, statesmen, athletes, leaders and of course experts in financial intelligence, such as businessmen and entrepreneurs) summarize decades of experience in books that you can read in hours or in a few days.
Being able to absorb the knowledge with which Warren Buffet, Jeff Bezos or Charles G. Koch built their empires with decades of tireless work is nothing short of incredible.
The abundance of topics you can delve into is practically limitless. You can learn from technical topics, such as accounting, financial statement analysis, and macroeconomics, to much more spiritual topics (not least in financial intelligence), such as the ability to clearly define your goals, visualize them daily, and trust that you will achieve them.
Here again, self-knowledge is essential to know which topic is the one you most need to focus on and achieve your goals.
According to Niel Patel, there are more than 1 billion blogs in the world. Almost 7 people for each blog.
Like books, there are about all the topics that exist. How to decorate cookies, how to train your dog and how to improve your personal finances.
Many worthwhile blogs have an aspect that personally appeals to me a lot: an ordinary person tells their experiences on a particular topic, with their successes and failures.
I, for example, read blogs from people who have managed to build a profitable blog . And I read them regularly, because I want to too. And I want to avoid their mistakes, and try to imitate their successes. This can save me months of work and thousands of euros.
On my blog, for example, I write about my path to financial freedom. Why I did it, what worked for me, and what definitely failed ( in this link you can read about my 15 financial mistakes ).
I don’t want to end this segment without leaving a note of caution: be very selective! Among 1000000000 (a billion) blogs, there are many bad ones and few good ones. As always, stick with the good guys!
This is salvation for those who do not like to read. There are also courses of all themes, flavors and colors. There are courses from large and prestigious universities, as well as short courses on how to calculate the interest rate in Excel.
The courses have great advantages:
- Many of them are multimedia. They have audio, text, video, face-to-face classes, exercises and worked examples.
- There are courses of the level you want. Basic, intermediate, advanced and super pro.
- In some courses you have classmates, with whom you can discuss the topics and even have a beer (or two ).
- The courses have an interactive component. You can ask the teacher or tutor immediately. In blogs too, but in courses this process is much more direct.
Way #3 to improve your financial intelligence: games
I love. Games are the way to practice what you learned, and without risk. They are one of the most underutilized forms of learning.
We all know that the best way to learn anything is by doing. Think only of swimming, cycling or public speaking. You learn with practice. Personal finances are not much different.
The advantage of the games is that they are risk free. Well, maybe you’ll lose 3 or 4 beans if you bet with your friends, but I think you can handle it. You can practice over and over again.
My wife and I love personal finance games. There is one in particular (the game of capitalism) that has an incredible level of reality. At first we always broke. We even started to worry.
Could it be that we did not read the instructions well? Could it be that we are doing something wrong?
We were indeed doing something wrong. Very bad. We were making investments of such a large size that they left us with no room for manoeuvre. We wanted to become millionaires too fast.
And in real life, we look at big, very attractive opportunities and we always think, “If we get into this, we might get the same thing as in the game.” We discarded them and went for more prudent alternatives.
Way #4 to improve your financial intelligence: Mentor
In Omer’s Odyssey, when Odysseus left for Troy, he entrusted the care of his son, Telemachus, to his friend Mentor, who promised to take care of him and educate him as his own son.
This is where the name “mentor” comes from. As you can see, it is not the same as a teacher. He is someone who cares about the learner in a more comprehensive and committed way. It can be difficult to find a true mentor for a topic like personal finance.
In my case, this role was played by my grandfather, who, in addition to being an accountant, was highly organized, structured and cultured. He was always aware that I kept the little money he had in a bank account, at a time when inflation in my country was above 30%. Because I knew that if I didn’t, my money would lose more than 30% of its value in just 12 months.
You will ask me: “But if everyone in my family lives in debt up to the shirt, who am I going to ask to be my mentor?”
Moving away a bit from the story of Odysseus and Telemachus, I think that “mentor” can be a person who has already done what you want to achieve. Or at least go a few steps forward. If you know a friend or an uncle who is organized and judiciously budgets for himself, he can help you budget.
On the other hand, I firmly believe that in a certain way book authors are mentors, because they have often already achieved what we are after.
For example Josh Waitzkin, if you want to learn chess. Malcolm Gladwell can be your storytelling mentor. Niel Patel can be your mentor in digital marketing. In fact, with social media, it’s now easier than ever to contact book authors.
You will probably reach the same conclusions on your own as with the guidance of a mentor. But this one can save you years, lots of money, and emotional toll. Plus, you get to meet some amazing people.
Way # 5 to improve your financial intelligence: jump into the water
At some point knowledge has to touch reality. This is the moment. You have already started a path of meditation until you reach full self-knowledge. You’ve read the top 5 personal finance books. You’re subscribed to the best blogs on the subject (I hope 123 Dinero and CyberHuaca are on your list!!) You’ve taken courses on budgeting and goal setting. And you’ve played ad nauseam. But none of this replaces the moment you commit that hard-earned $5,000 to your first investment. You studied everything, but the only way to know if the analysis was correct is to jump into the water.
Buy your first apartment. Your first package of shares. Commit to some exciting but ambitious goals. Hold your first budget closing meeting. There is no way to do it.
If you buy stocks and you are sure of the analysis, there always comes a time when the CEO of the company announces that they will not meet the objectives. The share price plummets, and your $5,000 is now worth $3,500. If you keep pulling your hair out, you’ll go bald.
I don’t want to end this point without alerting you: at some point you have to start.
But start wisely.
If you are going to decide on a first investment of 100,000 euros and your assets are 80,000, it can happen to you like me in the game. First make 10 investments of 1000 euros. In some you will lose, in others you will win, but rest assured that after 10 times you will know more than when you had 2 or had none. In each defeat, understand what went wrong and write it down, as Ray Dalio says, on your list of principles.