Financial literacy has not been a strong suit of the U.S. education system, noted an NPR report featuring a series of academic studies. And while interventions can be made to address this problem, let me share some important financial literacy lessons I learned outside the four walls of the classroom.
1. You Can Make More As An Entrepreneur Than As An Employee
In school, the focus is often on preparing students to become employees rather than entrepreneurs. Education systems can be designed to produce individuals who can fit into the corporate structure, keep their heads down, and work hard so they can pay taxes to feed the system. While this is a valuable and necessary path for many people, it is important to recognize that there are alternative routes to financial success.
Entrepreneurship offers the opportunity to break free from the limitations of a fixed salary and traditional employment. By starting your own business or pursuing entrepreneurial ventures, you have the potential to earn significantly more money—sometimes 10 or 100 times more—than what may be possible as an employee.
2. Focusing On Return On Time As A Metric
People often are trained by traditional school systems to think of their value in terms of wages per hour as an employee. But if you can make the leap to being an entrepreneur, you can put a system in place that allows other people or technology to fulfill systemic needs and amplify your return on time.
To illustrate this principle, consider a simple business example involving a teenager offering yard work services to neighbors. Initially, the teen could work directly for neighbors at a rate of $20 per hour, earning $160 per day for an 8-hour workday.
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This scenario is not much different than being an employee since the return on time is limited to the number of hours worked. However, if the teen takes on the challenge of finding new clients and hiring other peers to fulfill the yard work, the teen can amplify their return on time.
Instead of performing all the yard work alone, the teen can hire other peers in the neighborhood to fulfill the tasks at a lower rate, say $10 per hour. The teen currently earns only $80 in profit, but as an entrepreneur can have as many clients as there are other neighborhood teens who are willing to be employees.
By going door to door on Saturdays to secure one new recurring client per week, the teen can add $80 per week in recurring profits, doubling earnings to $320 in only four weeks. Imagine if the teen found 10 new clients.
Of course, scaling the business involves taking on additional challenges such as coordinating with others, investing in equipment like a truck, and assuming some risk. However, by embracing these difficulties and putting in the hard work, the potential rewards can be far greater.
3. The Real Cost Of Spending
When you spend money outside of essentials, you are actually spending the difference between what you earn and what your expenses are. Suppose that fresh out of college, you earn $3,200 a month after taxes. If your expenses amount to $3,100, you are saving $100 per month.
If you can find ways to reduce your expenses to $2,700 per month, you will be able to save an extra $400 per month. This allows you to save for retirement or achieve financial freedom at a rate five times faster than before.
Another way to think about it is that when you engage in unnecessary or discretionary spending, you are not just paying for a specific item. You are also using up the margin or the difference between your income and expenses.
Let’s use the example above of $2,700 in non-discretionary expenses with savings of $500. If you increase expenses by $300, that reduces your savings for the month by 60% — from $500 to $200 — even though $300 is only 10% of your total $3,000 in expenses.
You are first spending all the money necessary for essential expenses like rent, utilities, phone bills, and insurance. After taking care of these expenses, the remaining margin is what you can save for retirement or invest in a business venture that could potentially lead to financial independence.
Do not give up that margin without first calculating its true cost.
4. A Degree May Have The Worst Ratio Of Time And Money Invested Compared To Alternatives
While obtaining a college degree may have been the traditional route to employment success in the past, it is no longer the only path to differentiation in today’s job market. There are hundreds of ways to build your personal brand to make yourself more employable, unique, and valuable.
Let’s say your degree cost an average of $100,000 and it took you four years to finish. I would argue that other things cost one one-hundredth of the price and time you spent on that degree that add more perceived credibility to your name.
For example, my first book, Raising an Executive, was a major catalyst in terms of building my personal brand and name credibility. It garnered me multiple spots on TV and radio, and I believe it was the tipping point for several clients who chose to work with me.
It took me only a few weeks to write the book and leverage marketing tactics to make it a No. 1 bestseller on Amazon. The credibility I gained from this experience was significantly higher than getting my degree, which is very rarely brought up in a professional context.
There are several other low-cost and time-efficient ways to build your personal brand and differentiate yourself in your field. Pursuing certifications, seeking mentorship from prominent industry figures, engaging in public speaking, starting a nonprofit related to your field, or contributing to media publications all can be effective strategies.
While a degree may still hold value in certain fields, it is important to explore alternative paths that can provide a higher return on investment in terms of perceived credibility.
5. Your Resumé Is Not As Important As You Think
College might teach you that your resumé is the most important thing, which is simply not true.
A friend of mine was having trouble finding employment out of college. After applying to more than 300 jobs, he did not even make it to the interview process.
So, he created a fake resumé saying he graduated from a top-tier university with a 4.0 GPA and listed a bunch of other fake impressive details just to see if he could at least get a callback.
Sure enough, after filling out a dozen or so applications with the fabricated perfect resumé, he still did not get any interviews.
In my experience, your network is significantly more important than your resumé. If you know the right people who believe in you, they can vouch for you to an employer and you will get a chance at a job, even if you do not have the resumé for it.
Your network will refer business your way or vouch for your employability when you do good, hard work, and have a passion for what you do.
6. Talking About Controversial Topics Is Okay
I’m a strong Christian and used to think my faith would somehow disqualify me from running in certain circles. But spending hours in prayer before God and talking with clients and colleagues about time with Him has had the exact opposite effect.
People are refreshed when they hear someone is doing things differently. I used to conceal my faith to not ruffle feathers. But walking with God has made me more reasonable, humble, and sober minded in a way that makes people with differing views cherish and value how I see the world.
I would never bring up a controversial topic for offense’s sake. But if God is showing me something through the house church my wife and I lead, and it applies to the business situation, I will absolutely speak up and share it.
I have had people I work with open up to me about alcohol abuse and sexual struggles, and overall have developed a kinship with clients and colleagues that I never would have developed if I did not share where I was coming from.
I would say that as long as you are talking and walking with humility, you are free to share things that may otherwise be taboo or put you at risk of butting heads with clients and colleagues.
Final Thoughts
The path to financial and professional success is not linear and certainly not one-size-fits-all. These lessons serve as a testament to the power of thinking outside the box, challenging traditional norms, and embracing a more creative approach to your career and financial success.
Whether it’s relearning how you think about your time, leveraging your unique strengths, or finding courage to share your convictions, I would encourage you to remain open-minded in your path to financial success and to challenge the status quo. The most valuable lessons often come from experiences and perspectives not necessarily found in textbooks or taught in school, and it’s never too late to start learning.
