ACCOUNTANT EXPLAINS: Money Habits Keeping You Poor

Summary

This video script delves into nine common bad money habits that impede financial growth and offers strategies to overcome them. It emphasizes the importance of paying oneself first, avoiding bad debt, and understanding personal income and expenses. The speaker also addresses the pitfalls of expensive hobbies, the need for a balance between saving and earning, minimizing tax liabilities, and the urgency of investing early to combat inflation. The goal is to empower viewers to take control of their finances and build wealth.

Takeaways

• 💼 Pay Yourself First: The speaker emphasizes the importance of saving a portion of your income before covering other expenses, as recommended in 'Rich Dad Poor Dad'.
• 💳 Avoid Bad Debt: The speaker advises against using debt for small purchases and highlights the high interest rates of credit cards, which can negate any benefits they offer.
• 🏦 Build an Emergency Fund: Saving a portion of your income, starting with 10%, is suggested as a way to create a six-month financial buffer.
• 📊 Understand Your Finances: Knowing your income and expenses is crucial for financial planning and avoiding lifestyle inflation, where spending increases with income.
• 🛍️ Limit Expensive Hobbies: The speaker points out that hobbies can be costly and suggests finding ways to save more income or create additional income streams.
• 💰 Balance Saving and Earning: Wealth is built not only by saving but also by increasing income, with the latter offering unlimited potential for wealth accumulation.
• 💼 Invest in Your Future: The speaker encourages investing as a way to make your money work for you, rather than letting it sit in a bank account where inflation erodes its value.
• 📉 Diversify Investments: To manage risk, the speaker recommends a mix of safe and riskier investments, tailored to one's risk tolerance.
• 💡 Be Proactive with Taxes: Knowledge of tax rules and strategies can help minimize tax bills and increase wealth, with examples like ISAs or Roth IRAs.
• 📚 Educate Yourself: The speaker suggests that understanding personal finance is key to breaking bad money habits and achieving financial freedom.
• 🚀 Start Investing Early: Delaying investment can lead to working harder to achieve the same results, emphasizing the benefits of starting as soon as possible.

Q & A

What is the first bad money habit discussed in the video script?

The first bad money habit discussed is 'paying yourself last,' which means spending on all other expenses before saving any money from one's paycheck.

Who is the author of 'Rich Dad Poor Dad' and what principle does he advocate for in terms of financial management?

The author of 'Rich Dad Poor Dad' is Robert Kiyosaki, and he advocates for the principle of 'paying yourself first,' suggesting that one should save a portion of their income before covering any other expenses.

What is the recommended minimum percentage of one's income to save according to the video script?

The video script recommends saving a minimum of 10% of one's income as a starting point for building financial freedom.

What is the issue with accumulating bad debt as described in the script?

The issue with accumulating bad debt is that it becomes the norm, leading people to use debt for even the smallest purchases. This habit is financially unhealthy as it can lead to high interest rates and a cycle of debt.

Why is it important to pay off credit card debt to avoid high interest rates?

It is important to pay off credit card debt to avoid high interest rates because the average credit card interest rate is around 22%, which can negate any benefits or rewards offered by the credit card companies if the debt is not paid off in full.

What is the term used to describe the phenomenon where spending increases as income rises?

The term used to describe the phenomenon where spending increases as income rises is 'lifestyle inflation.'

What is the significance of knowing one's income and expenses in managing personal finances?

Knowing one's income and expenses is significant in managing personal finances because it provides a clear starting point for financial planning and helps to avoid lifestyle inflation, enabling one to set and work towards clear financial goals.

Why are expensive hobbies considered a bad money habit according to the script?

Expensive hobbies are considered a bad money habit because they can lead to unnecessary spending and financial strain, which can hinder one's ability to save and invest effectively.

What is the ideal combination for building wealth according to the script?

The ideal combination for building wealth, as mentioned in the script, is a mixture of both saving a larger percentage of one's income and creating additional income streams, as saving alone has a cap while earning potential is limitless.

How does the script suggest minimizing tax expenses as a means to increase wealth?

The script suggests understanding tax rules and utilizing legal corporate structures or hiring tax advisors to minimize tax bills, such as investing through tax-sheltered accounts like an ISA or a Roth IRA.

What is the advice given in the script regarding the timing of investing one's savings?

The script advises against waiting too long to invest one's savings, emphasizing the importance of starting to invest as soon as a financial buffer is established to ensure that money works for the individual and to avoid the loss of value due to inflation.

Outlines

00:00

💼 Financial Freedom Through Habits

The speaker reflects on their decade-long journey in finance, highlighting the importance of managing personal finances and breaking bad money habits. They introduce nine common financial pitfalls and strategies to overcome them. The first habit discussed is 'paying yourself last,' which contrasts with the 'rich people's habit' of prioritizing savings. The speaker emphasizes the significance of saving at least 10% of one's income as a bill to ensure financial freedom. They also touch on the dangers of accumulating bad debt and the importance of living within one's means, avoiding unnecessary expenses, and building an emergency fund.

05:02

💰 Building Wealth Beyond Savings

This paragraph delves into the concept of wealth-building, stressing the importance of not just saving but also increasing income. The speaker argues that while there is a limit to how much one can save, the potential to earn more is limitless. They suggest that breaking the habit of solely focusing on saving can significantly boost wealth. The speaker also discusses the impact of taxes on wealth, advocating for understanding tax rules to minimize tax bills legally. They propose using tax-advantaged accounts like ISAs or Roth IRAs and considering business operations to reduce tax liabilities. The paragraph concludes with an invitation for viewers to request more information on taxes, reflecting the speaker's intention to create content that aligns with their audience's interests.

Keywords

💡Finance

Finance refers to the management of money and includes activities such as investing, borrowing, lending, budgeting, saving, and forecasting. In the context of the video, finance is the overarching theme as the speaker discusses personal financial management, habits, and strategies for achieving financial freedom.

💡Accounting

Accounting is the systematic recording, reporting, and analysis of financial transactions related to a business or individual. It is one of the qualifications the speaker has acquired, indicating their background in understanding and managing financial records, which is crucial for handling personal finances effectively.

💡Investment Banking

Investment banking is a division of banking that assists individuals, corporations, and governments in raising capital by underwriting or acting as the client's agent in the issuance of securities. The speaker's career in investment banking has provided them with valuable insights into financial markets and investment strategies, which are shared in the video.

💡Financial Freedom

Financial freedom is the state of having control over one's finances, being debt-free, and having enough savings or income to cover all expenses without constant worry. The speaker mentions this concept as a goal achieved through good financial habits, such as 'paying yourself first'.

💡Paying Yourself First

Paying yourself first is a financial principle where one allocates a portion of their income to savings or investments before paying any expenses. The speaker emphasizes this as a key habit of wealthy individuals and a strategy for building wealth and achieving financial freedom.

💡Debt

Debt is an amount of money borrowed by one party from another, with an agreement to repay the borrowed amount and usually an added interest. The video discusses the dangers of accumulating bad debt and the importance of managing it to avoid financial strain.

💡Credit Card Interest Rate

The credit card interest rate is the cost charged by credit card issuers on the outstanding balance of cardholders. The speaker warns about the high average interest rate of 22%, which can significantly impact one's financial health if not managed properly.

💡Lifestyle Inflation

Lifestyle inflation refers to the phenomenon where an individual's spending increases in line with their income. The speaker mentions this as a common pitfall that can prevent individuals from building wealth, as they may not save or invest the additional income they earn.

💡Assets and Liabilities

Assets are items of value owned, while liabilities are debts or obligations. The speaker advises that financially savvy individuals have a clear understanding of their assets and liabilities, which helps them set financial goals and make informed decisions.

💡Savings

Savings refer to the money set aside for future use, not spent on immediate consumption. The video emphasizes the importance of having a savings account and treating contributions to it as a non-negotiable bill to be paid first, as part of the 'paying yourself first' habit.

💡Investment Fund

An investment fund is a pool of money collected from many investors to invest in a diversified portfolio of assets like stocks, bonds, or real estate. The speaker suggests building an investment fund as a way to grow wealth beyond just saving, by putting money to work in various investment opportunities.

💡Tax

Tax is a compulsory contribution to state revenue, levied by the government on workers' income and business profits, among other things. The video discusses the impact of taxes on wealth and suggests strategies for minimizing tax liabilities legally to maximize financial growth.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, the purchasing power of currency is falling. The speaker warns against the eroding effect of inflation on savings and encourages investing as a means to protect and grow wealth.

💡Diversification

Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. The speaker mentions diversifying investments to manage risk and adapt to different economic situations, which is essential for long-term financial health.

Highlights

The importance of paying yourself first as a key habit for achieving financial freedom, as discussed in 'Rich Dad Poor Dad' by Robert Kiyosaki.

The contrast between poor people's habit of paying bills first and rich people's habit of saving first.

The necessity of saving at least 10% of income as soon as it is received, treating it like a bill.

The problem of getting comfortable with bad debt and the need to avoid using debt for small purchases.

The high average credit card interest rate and its impact on financial health.

The concept of lifestyle inflation where spending increases with income.

The importance of knowing your income and expenses to effectively manage finances.

The potential negative impact of expensive hobbies on financial goals.

The strategy of both saving more and creating additional income streams for wealth building.

The idea that saving money has a cap, but making money does not, emphasizing the potential for unlimited income.

The role of tax in wealth accumulation and the benefits of understanding tax rules to minimize tax bills.

The suggestion to invest through tax-advantaged accounts like ISA or Roth IRA to shelter income from taxes.

The importance of not waiting too long to invest and the benefits of diversifying investments.

The warning against leaving money in a bank account due to the effects of inflation.

The encouragement to start investing once a financial buffer is established.

The idea that delaying investment can lead to harder work for the same financial outcome.

Transcripts

I have spent the last decade of my life immersing  myself in the field of finance and money through a  

degree in finance a qualification in accounting  and then a career in Investment Banking and one  

of the most life-changing skills I have learned  through it all is how to handle my own finances  

recognize my bad money habits and break free from  them so in this video I'm going to share with you  

nine of the most common bad money habits that  hold people back and tips on how to break out  

of them number one paying yourself last I first  heard of this in the book Rich Dad Poor Dad by  

Robert Kiyosaki and it's one of the blueprints in  achieving Financial Freedom Robert explains that  

the way people pay their bills can be broken down  into two types the first way is the Poor People's  

habit and that is through paying yourself last  so as soon as your paycheck comes in you then  

pay your rent your phone bill your subscriptions  you find your social plans and then you'll save  

whatever's left over if there is even any money  left to save the second method he talks about is  

the rich people's habit and they do the complete  opposite they pay themselves first and that is  

what you want to do take 10 minimum and put that  into your savings account the minute you get paid  

treat it like paying a bill this is so important  and by doing this you're guaranteeing that that  

buying their things before you pay yourself the  second bad money habit is getting comfortable  

with bad debt it seems that debt these days is  actually the norm people are using debt to by  

the smallest of things to buy presents to buy  clothes I have a straight wall that is unless  

I can afford to pay for that thing outright and  cash I shouldn't be buying it with any form of  

debt remember credit card companies want you to  be bad with your finances because that's how they  

make money from this the average credit card  interest rate is 22 which cancels all kind of  

benefits and rewards these credit card companies  are providing if you're not able to pay them off  

number one which is about paying yourself first  and essentially it's saving enough so that you  

this six months of buffer it's through that paying  yourself first start putting that 10 away and once  

you have your stockpile then you can start using  the additional money you save to building into  

your investment fund and looking at Investments  number four is not knowing your income or expenses  

properly until you know what your starting point  is how do you know where you want to be there's  

something called lifestyle inflation and that is  your spending will rise as your income Rises the  

more money you make the more you spend and it's  a cycle make more money buy a bigger house buy a  

financially they know their assets they know their  liabilities they have a clear goal on where they  

want to go financially and all this all the steps  they need to take to get there are more likely to  

get a lot of money and build wealth compared  to people who just fantasize about money but  

have no idea how to go about it how they plan to  acquire it or how to manage it just being mindful  

of their stuff and seeing those numbers in black  and white will trigger you into action fifth bad  

money habit is having expensive Hobbies a lot of  people like to shop and I guess yeah part of this  

if you want to improve your financial position you  can firstly save more of your existing income or  

you can make more money and create more income  streams and the ideal combination is a mixture  

of both you can't build wealth if you're making  more money and spending all but you also can't if  

you're just focusing on the saving side because  there is a cap to how much you can save using  

those cashback sites will only get you so far so  to truly build wealth you have to think of both  

sides of the equation both how you will save a  larger percentage of your income but also how  

you will make more money saving moneyside has a  cap the making money side does not it's infinite  

there is unlimited potential upside whether it's  investing in the stock market asking for a pay  

rise starting a side hustle you want to break the  bad money habit of thinking about saving money  

is going to massively increase your wealth number  seven paying too much in taxes taxes are going to  

be the single biggest expense in your life whilst  everyone has to pay tax a lot of people just  

wealthy they have knowledge of illegal corporate  structures that come with tax advantages they hire  

tax advisors that help them minimize their tax  bills so if you want to get one step ahead one of  

the best ways to increase your wealth is through  understanding tax rules in a way that's stack up  

in your favor for example investing through  an Isa or a Roth IRA which is an investment  

account that shelters your dividend and profit  from taxes or operating under a business instead  

if you are someone who disagrees with this and  prefers to pay more taxes regardless of whether  

or not you can reduce it legally then it doesn't  hurt to understand the tax rules and reduce that  

tax bill so that you can instead use the money  to give back to things that directly align with  

your values instead of letting someone else decide  where that money should be going if you want me to  

make a video on tax I was planning to I already  have a summary on what I want to include but I  

have been a bit skeptical about whether to release  this it's a topic that can go either way so let  

me know in the comments below if you want to see  that number eight waiting too long to invest when  

you start having savings you have that stockpile  that buffer that we spoke about then you want to  

start looking at investing that money so that  your money starts working for you and you want  

to diversify those Investments so you can weather  different situations operations that come around  

in life but you want to avoid leaving that money  in a bank account because inflation is a thing  

and it means that you're essentially losing money  every year so I have a mixture of safe Investments  

of riskier Investments that I'm willing to lose  as well start looking at different investment  

strategies once you've saved up enough don't leave  any additional money more than you need to in a  

bank account I have another video and what you  can be doing with your money in times like the  

current recession and I'll link that here for you  as well there's always going to be reasons why  

you can't invest because you don't have time you  don't have enough money you don't know where to  

start but the longer you put off investing the  harder you will have to work to get that same  

may also enjoy another one that I've linked here  on Building Wealth and making money work for you