Learn the Language of Money
Imagine you walk into the doctor’s office one day and everyone is speaking a different language. You go to the receptionist’s desk to try and check in, but she asks you a bunch of questions that you don’t understand. You try to explain that you’re just here to see your doctor, but she doesn’t seem to understand you and only repeats more questions. Disoriented and confused, you leave the office and decide “I’ll figure it out next year”.
This is exactly how many people treat their money, particularly when it comes to investing. They wander into a world filled with confusing words like “asset allocation” “diversification” “index funds” and decide this is all way too confusing to figure out, so they give up.
In order to be good with money, you have to learn to speak the language. Just like none of us are born speaking a particular language, we’re not born with an innate understanding of money; we have to learn.
Learning how to be good with money is much the same process as learning a new language, and it all starts with the vocabulary.
When I was learning to speak Spanish, I had to learn words like “escuela” before I could make a sentence “Voy a la escuela”. Similarly, to be good with money, you have to learn money vocabulary like: Roth IRA, return, asset allocation, before you can understand a sentence like “What is the asset allocation of your Roth IRA?”
Just like learning a language, patience, practice and the ability to laugh at oneself when making mistakes (an important part of any learning process, in my opinion) are the most important parts of learning how to manage your money.
So if you’re ready to start learning the language of money, here are my top three suggestions:
1. Read books, listen to podcasts, watch videos
When I first started my own money journey, I got books from my local library and watched videos online. 99% of what I know about money today was something I learned from one of these three resources.
The well-kept industry secret is that you can buy a book for $20 that will teach you more than a financial advisor who charges thousands of dollars. The reason financial advisors stay in business when there are so many amazing, cheap resources out there, is because they are profiting off of you being too scared to manage your money on your own.
We get confused when we hear words like “capital gains” and “equity” so we decide money is too hard or too scary and we default to making it someone else’s problem. “I don’t know how to manage my money, but you’re a professional who charges a lot, so you probably do”.
Education solves this problem. The more you hear money words, the more familiar they will become. Read a book before bed, listen to a podcast on the drive to work, watch videos online during lunch. I promise that all the information you need is out there and it’s easily accessible if you just make the decision to learn.
2. Remember, you’re a novice. Keep it simple.
When kindergarteners are learning to read, we don’t just hand them a Harry Potter book, right? They need short books and simple sentences until they’ve mastered the new vocabulary and are ready to advance.
Similarly, if you’re new to managing your money, don’t get swallowed by all the information about options trading, market analysis and whatever bitcoin is doing. You’re focusing on tracking your expenses, opening an IRA, paying off your debt or increasing your credit score. Don’t get sidetracked.
3. Learn the vocabulary!
Finally, check out my Money Glossary, where I post a new word every week. Were you trying to look at your 401k and found confusing words like “mutual funds” “dividends” and “cash equivalents”? In my money glossary, I define money terms in simple terms to help you learn the language of money.
Learning about money can be hard, especially when “financial experts” use confusing terms that most of us don’t understand to discuss our own money. But just like learning a language, you need to learn the vocabulary before you can become fluent. Take it one step at a time.
Action Items:
Check out my money glossary! I post new terms every week.
Look for books at your library. Whether you’re saving up to buy a house, investing for the first time, or want to know what kind of life insurance to get, books have the answer.
Don’t give up. It’s easy to open up your 401k, see a bunch of confusing words and charts and want to give up. Fight through that feeling. It’s less complicated than it seems.
Have you decided that this will be the year you finally get control of your money? Great! Check out my blog How to Make a New Year’s Resolution and Actually Stick to it for tips on how to hit your goals.
Your life may not be perfect, but it is imperfectly yours. The only way to live it is your way.
