Blog about Personal Finances, Investments, Money Management and Financial Freedom

Let’s talk about financial intelligence

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Financial intelligence incorporates multiple dimensions and transcends the mastery of the concepts of finance.

Robert Kiyosaki says: “Financial intelligence refers not so much to how much money you earn, but how much money can you keep, how hard that money works for you and for how many generations it has been preserved.” Obviously, obtaining financial independence by  constructing a business system (quadrant D) or by investing (quadrant I) requires that we have a degree of intelligence applied to the world of finance.

But financial intelligence is not only essential for those who live on the right side of the Cash Flow Quadrant; it is also needed by those at the left side: those who are not comfortable in their role of employees (quadrant E) or who independently and on their own work long hours to ensure economic sustainability (quadrant A). With certain knowledge and enough willingness to break emotional attachments, these people can begin to design a system of self-generating money and thus cross the threshold of their respective quadrants.

Obviously, financial intelligence is not limited to the mastery of the concepts of finance, but also is associated with leadership, strategic thinking, personal marketing, communication, negotiation, conflict management, social skills and management of emotional heritage, and others.

A good way to identify to what extent you possess financial intelligence, is checking the following items:

  • Your income is greater than your expenses (you have capacity for saving).
  • You manage to find new forms of income (in several quadrants simultaneously).
  • You have identified your financial goals and you have designed your task list to achieve them.
  • You know how to optimize and earn higher returns on capital.
  • You feel you are on the right track to achieve your financial freedom.

The people possessing a meaningful financial intelligence always think big, and regardless of the circumstances surrounding them, continually design plans to enhance their assets and reduce their liabilities, thereby obtaining greater profitability and liquidity while they improve their quality of life.

If you want to have a financial culture that is your ally in the life project you’ve designed, you must start by understanding the functioning of money as well as the psychological aspects that drive people to use it in a certain way.

The expensiveness of ignoring financial matters

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The lack of financial literacy is one of the major factors that trigger anxiety and anguish in the contemporary world.

One of the main triggers of anxiety and distress, is derived from the almost total absence of financial literacy, resulting in profound and costly mistakes regarding the generation and management of money.

Financial issues go far beyond money management; that would be equivalent to going on a holiday and taking the first plane you find without knowing where it is going. In the same way as you plan your vacation dates, destinations, accommodation, attractions you will visit, appropriate clothing depending on the destination and time of year, your budget, visas, travel insurance, etc., you should also plan your financial life.

If you think I am exaggerating, ask yourself why in the United States (for instance) half of all marriages end in divorce, and why financial issues stand out as one of its main causes; and even if they end in divorce, most (if not all) acknowledge having starred in serious discussions on issues associated with money. Ask yourself also why almost 25% of people between ages 35 and 54 have not started planning their retirement, and imagine the little economic tranquility of these people when they stop receiving their monthly salaries.

Another fact that calls us to reflection has to do with the fact that 90% of the world population (employees and self-employed) only owns 10% of the money available in the world; while the remaining 10% (business owners and investors) handles the other 90% of the global wealth. This has nothing to do with gender, race, nationality or academic preparation; It has to do with our attitude towards money and finances. The truth is there can’t be productivity and happiness, as long as money remains the main cause of strain and stress. Remember that if you are not capable of controlling money, money will control you.

Assume that money is a serious matter that involves accepting responsibility and assume the consequences of how you handle it. You don’t need to be an expert in finance to manage money in a responsible way, but always keep in mind that everything depends on you (and not your circumstances). As long as you don’t know the basic financial principles you will be prone to spending much more than you need, to indebt yourself,  you won’t be able to pay monthly bills, you won’t provide happiness to your marriage,  you also won’t have how to cope with unanticipated expenses (diseases, occasional housing expenses, investment opportunities, or even a new child), live constantly concerned about the lack of money and you’ll have to take drastic measures that can affect your health and that of your loved ones.

What you need to know about money and stress

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It’s said that money is the root of all evil. Some popular sayings like: “more money, more problems”, or “blessed are the poor” invite us to think that on occasions, it’s preferable to not have money because it changes people and, in many cases, it’s the root of severe personal and family conflicts.

At the same time, when you have enough money, you feel that life is more bearable, less worrisome; what previously overwhelmed you, now you see from another perspective. Having  financial freedom makes you see the world with more light, you live carefree, you breathe air of safety and self-esteem, you can afford to buy a house, a nice car, enjoy holidays and of course pay religiously all monthly receipts and obligations which you have committed to.

Historically, money has always been stressful, but lately, the list of elements that generate tension and anxiety is being led by issues related to money, and with good reason. If we recognize how difficult it is to earn a living, it’s no wonder that we are so sensitive about the issue of money, and there are so many people that suffer day after day, building irreversible consequences for their physical and emotional health.

Pay attention to these facts about how money impacts stress levels

  1. The lower the income, the greater the propensity to stress. The American Psychological Association (APA) has shown that in recent years, people with lower income are more likely to suffer from stress. This contrasts with a study in 2007, in which a significant correlation between income and stress levels experienced by people who participated in the study was not found.
  2. Feeling the inability to pay for health care can really make you sick. Money problems cause stress that can lead to health complications for two basic reasons: firstly, you become ill due to stress; but at the same time, you neglect your health because you are too focused on money problems and also because you’re convinced that you do not have enough slack to allocate some of that money to health care, or you feel you must save the little money you have to meet mandatory and extremely necessary expenses. Under these conditions, health rapidly deteriorates, increasing vulnerability to serious events such as strokes or heart attacks. Moreover, the loss of health, the burdens and concerns, significantly influence the responsiveness to overcome the crisis; you cannot think straight, much less evaluate opportunities and choices you have to take to make smart decisions based on your personal circumstances and family. This generates more stress and a tendency to eat in an unhealthy way, to overeat and to have irregular sleep patterns. As you can see you get into a vicious circle that is difficult to escape
  3. You will never be able to buy with money one of the best antidotes for stress. In most cases, emotional support from family and friends is the only truly effective way to reduce stress and combat its effects. The simple fact of having the support of people who may help you in your worst moments, increases your tolerance to uncertainty and dramatically reduces stress levels. A survey by the APA in 2014, concluded that 43% of people who reported not having emotional support, increased their level of stress in the last year, compared with 26% of those who acknowledged such support.

You may have noticed the importance of preventing stress from taking root in your life, and even more money-related issues. To prevent this, the American Psychological Association makes a set of recommendations which are briefly summarized as follows:

1) Do not panic or fall into negativity; on the contrary, you should remain calm and focus your mind on the solution.

2) Identify factors that really cause financial stress. This is a must to develop specific action plans to overcome each of these factors.

3) Assess the way you are handling money related stress (smoking, alcoholism, depression, abuse, violence, etc.) and establish the necessary corrective measures before the conflict becomes more difficult to resolve.

4) Avoid the routine and find new ways to help turn bad times into real opportunities for personal growth.

5) Ultimately, if none of these recommendations take effect and you’re still overwhelmed by your financial worries, it will be very useful and convenient to seek professional support.