Financial Literacy: 8 Tips from Bodo Schaefer

Forget about living permanently in debt “It will probably be hard for you to walk the path to financial freedom, but it’s much harder to live in financial dependence” Most people live in debt in pursuit of a beautiful life. And easy credit contributes to that. I, too, want to live in a huge mansion, […]


Forget about living permanently in debt

“It will probably be hard for you to walk the path to financial freedom, but it’s much harder to live in financial dependence”

Most people live in debt in pursuit of a beautiful life. And easy credit contributes to that. I, too, want to live in a huge mansion, have an expensive car and go to the resort every month, but I think about how to earn money, not how to borrow.

Living in debt complicates the path to financial freedom. By taking out loans, you just get into kabbalah, you become less confident about the future and more dependent on circumstances. Debt is the strategy of losers and saving is the strategy of winners.

Bodo Schaeffer believes that even getting rid of debt should be done wisely. You can’t spend all of your available money to pay it off at once. Half of the money should be used to save and half should be used to pay off loans. This is to ensure that in the period when you pay off the loans, a safety cushion has already been formed.

To have more, you need to mean more.

A faster path to financial independence can be taken by becoming more valuable in the job market. The labor market is a relationship where you sell your skills to your bosses for a certain wage. In order to have a faster cash flow, you need to earn more. So the best investment is an investment in yourself, in your personal and professional development.

Try to develop more skills that will distinguish you from others in the labor market. The goal is to become an indispensable specialist who will be willing to be paid a good salary. In the age of the Internet, this has become very accessible. It is now possible to increase your value from anywhere in the world by taking a huge number of courses and trainings.

Create your financial safety cushion

“Learn how to save money. He who knows how not to spend money in vain is rich. To respect yourself, you need to build up a six-month financial safety net.”

The problem with many people is not that they don’t earn enough, but how much money they spend after they receive their paycheck. The higher the income, the more all sorts of unreasonable spending. It is worth learning to keep yourself in check and give up things you don’t really need. That’s why saving money is even more important than knowing how to make money.

Knowing how to manage your money is a sign of financial literacy. It is frugality that opens the door to wealth, not solid income. All wealthy people know that frugality leads to even greater profits, which come from compound interest.

And you need to start saving by creating a financial safety cushion. It should cover your expenses for at least 6 months, better 1 – year, and in general it would be super – if 3 years. And money should be taken out of it only in extreme, very extreme cases. This is what a safety cushion is for, not to dip into it all the time.

Set aside 25 percent of your regular income and 50 percent of your unplanned income

One popular financial literacy book, George Clayson’s The Richest Man in Babylon, states that you should set aside 10% of the money you earn. But Bodo Schaefer believes that this amount is not enough and that it is necessary to save at least a quarter, and in some cases even half of your income. And to outrun inflation, it’s better to invest in stocks, because stocks, in his opinion, are always more profitable than money, because they are business investments. And most businesses grow over time.
To learn how to save money – it’s worth learning to pay yourself first. As soon as you get any income, immediately set aside a certain % of money. Who do not have the will power to save, it is worth to do automatic transfers to bank accounts. But it is better to do it yourself and not see saving as something that steals money from you, but as a way to increase it and become a rich person. That way it will be easier to save. Saving money is an important part of financial literacy.

Don’t work for money, let it work for you

“Decide for yourself whether you want to be a ‘money machine’ or be a lifelong ‘money machine’ for others.

Remember one thing. A person becomes wealthy when they start living off the income from their investments. Yes, one must first earn and save more money, and then invest the money earned in income-producing assets. So decide for yourself to choose the following life strategy – to make money work for you, not you for money.

And you can implement such a strategy by investing in the stock market – receiving passive income due to the growth of the share price and dividend payments. Just remember that you can’t invest all of your savings. There must be free funds with which to buy cheaper stocks as a result of a sharp drop in them. Therefore, financial literacy involves creating your own financial portfolio, on the interest of which you can live carefree.

It is worth remembering that stock market fluctuations are cyclical

“In the stock market, bad times and good times are constantly replacing each other.”

Investing involves a lot of risk. But if you want to achieve financial independence, you have to be prepared. The price of a stock goes up and down. An investor’s main rule of thumb is to buy when the price has fallen hard. At that moment many make a mistake and sell shares, while it is necessary to buy them on the contrary. The main thing is not to panic!

While a stock is falling, you should remain cold-blooded and at the same time look for new profitable opportunities. While inexperienced investors get rid of securities at a drawdown, experienced investors buy them. And there’s no reason to procrastinate. The price of a stock can recover very quickly. All this, of course, comes with experience. In the beginning there will always be mistakes, but there is no other way. But with time you will understand how to act in the stock market and make money.

You should aim for long-term investing. You should invest for at least 2-5 years. You should buy stocks with the money you won’t need in the near future. And you should never invest money borrowed – whether you will be able to earn it to pay it back in time.

Keep at least 5-10 companies in your portfolio

Bodo Schaefer recommends buying securities of companies from different sectors of the economy and even on foreign exchanges. The more diversified your investment portfolio, the lower will be the risk of reducing your capital share. However, it is very difficult to keep track of a large number of stocks, so if you are just starting to invest, stop at stocks of 5-10 different companies.

You can buy companies that pay dividends. They are usually very large and reliable, with a large financial reserve. Many financiers encourage you to study the statements of the company you are buying, giving great importance to ratios and statistics. Schaefer says that you just need to be guided by common sense. You just need to understand what the company does and whether it will be promising in the future. If it is, then by all means buy shares of such companies.

How much you will earn on the stock exchange will become clear after you sell the assets

“If your stock has plummeted, you’re not making any losses yet. The losses are only if the stock is sold at that moment.”

It’s worth knowing that fluctuations in the price of a stock do not, in and of themselves, carry profits or losses. They arise at the moment the securities transaction is closed. When you are watching the stock price, you need to put emotions on the back burner and make your decision only guided by reason. You should keep an investor diary to keep track of how, when, how much, and on what there were gains or losses. According to Bodo, such records increase financial literacy and awareness.

These tips, of course, do not reflect all knowledge of financial literacy. But they are very sound. And at one time I started applying them. It paid off. My monetary capital began to increase. And you can start with these same tips.

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