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  • 5 Basic Money Skills You Need To Know

  • We talk a lot about the stock market here on this channel, analyze the stocks and try

  • to figure out where the market is headed to.

  • That's all, of course, important; however, to start your journey of getting to financial

  • independence, you first need to master the basic money skills to improve your financial

  • literacy.

  • For some reason, a lot of people believe that just because they can spend money, they know

  • how to manage it, which is not the case.

  • Managing money is an art.

  • The reason why a company like Apple has been so successful is because it has a team of

  • incredible accountants who have been playing around with tax regulations to keep most of

  • what apple makes to apple so that they can keep investing in themselves to keep producing

  • innovative products.

  • It not just Apple.

  • The current US president has been avoiding taxes for years.

  • Despite his 3.5 billion-dollar fortune, the president has only paid 750 dollars in federal

  • taxes in 2017 and had completely avoided taxes in many prior years.

  • We will not dive deep into accounting skills and the methods they use to avoid taxes because

  • we have covered that in one of the previous videos, which link I will leave in the description.

  • But we will shed some light on 5 basic money skills that you should know.

  • In fact, they are so important that everyone should know them.

  • Number 1 - Asset vs. liabilities

  • If you have read the book rich dad poor dad, the most important idea the author is trying

  • to get to his audience is the difference between Assets and liabilities.

  • The reason why so many people are struggling financially is because they don't understand

  • the difference between assets and liabilities.

  • An asset is anything that puts money into your pocket, whereas a liability is anything

  • that takes money out of your pocket.

  • The concept looks so simple, but yet most people get it wrong.

  • People buy houses, cars and think that they are acquiring assets when, in reality they

  • are not.

  • When you buy a home, you have to pay taxes, utilities, insurance, and so on.

  • It constantly takes money out of your pocket, which means it's lability.

  • Your car is also a liability.

  • You have to buy fuel, pay insurance, maintenance and so on.

  • However, if you rent that car out and it brings more money than it takes, then it turns into

  • an asset.

  • The same applies to a house.

  • If you rent it out and after subtracting all the expenses and it ends up generating income,

  • then it's an asset.

  • The rich buy assets, the poor buy liabilities, and the middle class buys liabilities that

  • they think are assets.

  • 2.

  • Number 2 - Taxes

  • Taxes are one of the most complicated things out there, and that's not by accident.

  • They are meant to be complicated so that your average folk wouldn't understand them.

  • The tax code is written by the rich to keep them rich.

  • While on paper, it seems like the tax rates on the rich people are high, in reality, rich

  • people pay a small amount or, in some cases, close to nothing in taxes.

  • Corporate taxes in the US were around 39 percent during Obama, but no one really paid that

  • much.

  • In fact, sometimes they paid nothing.

  • When you pay taxes, you pay a fixed percentage base on your income, but when a company pays

  • taxes, they first subtract their expenses and pay taxes only on their net income.

  • And that means a company can have as many expenses as it wants.

  • A rich person doesn't pay himself to live lavishly but uses the company's funds to cover

  • his expenses.

  • And writes them off as business expenses and ends up paying lower taxes.

  • Many rich people run their companies at a loss to keep paying for their lavish life

  • and, at the same time, avoid taxes.

  • In fact, you can forward your losses to future years, so even if you end up making a profit,

  • you can deduct last year's losses and still avoid taxes.

  • When politicians say that we will increase taxes on the rich, they don't mean the ultra-rich

  • who make billions but the middle class who makes over 500K.

  • Since that 500k dollar is taxed under income tax, which is the highest tax rate in almost

  • any country.

  • If you don't master taxes, even if you end up making millions, you will be paying a big

  • portion of that to uncle sam.

  • And that takes me to the next point.

  • 3.

  • It's not how much money you make that mattersit's how much money you keep

  • Let's say you are a successful lawyer in California, and you make 1 million dollars.

  • How much of that you are going to take home, only $532,382.

  • Your total income, federal and state taxes are going to amount to 46.7 percent.

  • You are literally giving half of your money to the government.

  • And if you have a mortgage and a car loan, you will hardly be making ends meet.

  • Even with a million-dollar income, you will be living paycheck to paycheck.

  • That's why what matters at the end of the day is how much money you can keep after paying

  • taxes and covering your expenses.

  • Learn to save money.

  • If you lose that job, the government isn't going to give you back that half-million dollar

  • you paid in taxes.

  • The bank is going to come after your house and the car.

  • But saving alone isn't enough.

  • 4.

  • Learn how to let your money work for you

  • Having a lot of money sitting in your bank is useless to a certain degree because money

  • is a resource, and resources are meant to be used.

  • The only way to get out of a rat race is to have enough money working for you so that

  • you don't have to work another day.

  • The point isn't to lie on a couch and do nothing but rather have the freedom to do whatever

  • you enjoy doing.

  • So no matter how much you save, your money will run out at some point.

  • That's why you should let your money work for you by buying assets.

  • Remember, when we talked about assets vs. liabilities.

  • An asset could be anything from a rented property to a government bond.

  • Investing in some ways is easy and straightforward; however, in practice, it's a little more complicated

  • than it seems.

  • Stocks don't always go up, not every house is easily rented out, and government bonds

  • can sometimes have a lower rate of return than inflation.

  • So learning how to invest to get a high enough rate of return is an art by itself.

  • 5.

  • Number 5 - keep your credit score high

  • You probably heard that you need money to make money.

  • And that's true.

  • Making a 5 percent return on a thousand dollars a year is just 50 dollars, not enough to get

  • you a pair of sneakers from Nike, but a 5 percent on a hundred million dollars is 5

  • million dollars, enough money to let you live like a king in any corner of the world.

  • Debt is an important financial tool.

  • Whoever has mastered it has built a fortune out of nothing, and whoever is bad with debt

  • ended up bankrupt.

  • It's up to you on which side do you want to be in.

  • You can of course, work and save every penny to buy a house 30 years later or be good with

  • debt and get a mortgage at favorable terms now.

  • The first step to being financially responsible is keeping your credit score high.

  • The easiest way to do that is through credit cards.

  • I know that you might have a negative opinion about credit cards because you had to pay

  • incredibly high interest since you didn't cover your credit card debt on time.

  • That has happened to a lot of people, but if you are financially responsible, it's not

  • that difficult to pay your debts on time to avoid the extra interest.

  • Now you might say, why use a credit card when you can use a debit card.

  • Well, to build your credit score, you need to take credit and pay it back on time.

  • You can basically use a credit card to pay for the things you pay with a debit card and

  • at the end of the month, simply pay your credit.

  • That's how you raise your credit score, so next time when you need to get a mortgage,

  • for example, banks will consider you a financially responsible citizen and would give you a better

  • mortgage rate.

  • Imagine how much you will save even by getting a slightly lower mortgage rate.

  • Whether you like it or not.

  • You have to learn to be financially literate to a certain degree because even if you hate

  • money, you can't avoid it, and money will always play an important role in our lives,

  • so start mastering at least the basic skills first.

  • And now, it's time to give this video a thumbs up if you have enjoyed and hit that subscribes

  • button and the bell besides if you want to see more similar videos.

  • Thanks for watching and until next time.

5 Basic Money Skills You Need To Know

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5 Uncommon Money Skills Everyone Should Know

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    Summer posted on 2020/11/18
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