Why do most people fail when building wealth?
To understand this problem, let’s begin with a story. It’s a famous Indian folktale about three blind men and an elephant. In this story, each blind man is asked to walk up to the elephant, feel it with his hands, and describe what an elephant is.
The first blind man puts his arms around the leg and decides the elephant is sturdy and strong, like a tree. The second blind man grabs the swinging tail and defines the elephant like a rope. The third blind man holds the ear and believes the elephant is like a giant fan.
Each man is partly right, yet dangerously wrong. None has grasped the bigger picture because the truth of the elephant is far more complex than any one blind man’s narrow experience can convey.
The same is true when building wealth.
Many clients I come across are content to solely discuss and/or implement a fragmented piece of the wholistic wealth building strategy (financial plan). They’re content to work with half-truths, ensuring they’re blind to the bigger picture. They don’t understand the entire elephant.
If you aren’t working with all parts of the wealth building elephant together, then you’re setting yourself up for financial disappointment. You want to understand the whole elephant to put the odds of success on your side.
A simple example of this is people’s attitude towards insurance. They deem it a grudge buy and an unnecessary component of their financial plan. Most people are so intent on investing and building assets that they forget to cover their risks. They forget or purposefully overlook a crucial pillar in their wealth management strategy.
What good is creating wealth if you are unable to protect and retain it? The more things change, the more this rule holds. A good financial plan not only means investing in the right avenues and monitoring the plan’s progress, but also ensuring that you don’t lose your hard-earned money to unexpected events, fraud or sheer ignorance.
I’ve come to better understand this only through continually investing in my knowledge. There’s only so much your financial advisor can do and say with the limited time they have with you. The rest is up to you.
Financial literacy is the foundation of wealth management. Whether it’s debt usage and repayments, banking transactions, tax strategy and everything in between, make sure you don’t give away more than you should.
The ability to read and write is literacy. The ability to understand how money works is financial literacy.
Financial literacy is perhaps the most important survival skill you can learn. When you become financially literate, you begin to understand money and its practical applications. Financial literacy opens your eyes to what is really going on in your personal finances and gives you the ability to see beyond the numbers, right down to the root cause of problems.
Financial literacy allows you grasp the bigger picture because the truth of the elephant (your money problems) is far more complex than your current narrow experience can convey.
The biggest obstacle we all must overcome to reach financial independence is ourselves. If we’re financially illiterate, the simple truth is we lack the tools to live and prosper in a world of infinite consumption options.