Ep. 40 The 3 Money Rules They Never Teach You in School (That the Wealthy Use Every Day)

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Has anyone ever actually taught you how money works? For most people, the answer is no. And that's a systemic problem, not a personal one.

In this episode, Jim breaks down three rules of money that wealthy people apply every day, and most people never hear: compound interest (the force that's already working for you or against you), assets vs. liabilities (most people get cars and houses wrong), and opportunity cost (what every dollar you spend will never become).

These aren't theories. They're the rules that quietly determine whether your financial decisions build you up or hold you back.

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Transcript

Jim 0:00

Has anyone ever sat you down and actually taught you how money works? Not budgeting, not just saving, I mean actual rules of how wealth is built and lost in this country. For most people listening, the honest answer is no. And that's not a personal failure. It's a systemic one. These things are not taught in school. They're not on a standardized test. They get passed down in families that already have wealth. Today, I am gonna walk you through three rules of money that change everything when you understand them, not theory, real practical rules that wealthy people apply constantly and most people never hear or talk about. I know these rules because I had to learn them the hard way. I lived on the other side of them first. Welcome to Netwealth Nest podcast. Thanks for joining us today. I'm excited to share with you these tips and tricks about how wealthy people view and use their money. Most people are making financial decisions every day without knowing the rules that govern the outcomes of those decisions. Where you keep your money, how you use your debt, when you spend versus save. All these are predictable consequences that the rules explain. Not knowing the rules doesn't mean the rules don't apply to you. They apply to everybody. The question is whether they work for you or work against you. Wealthy people are not smarter, and a lot of times they're not luckier. In most cases, they're playing the same game, but they have the rule book open in front of them. Understanding these three big rules I'm about to teach you will not make you rich overnight, but it will permanently change how you see financial decisions you make from this point forward. rule number one, compound interest is either your greatest ally or your worst enemy. And whether you realize it or not, you're probably already choosing one or the other. Most people have heard the term compound interest, but very few have actually felt what it means in their own life. There are two directions that it works, and unfortunately, most people experience the bad side, at least initially and sometimes throughout their entire lives. Working against you are things like credit card debt. 18, 19, 24% interest rates. Every month, you're carrying a balance. That interest is calculated on your balance plus any of your previous interest. That debt can continue to grow without you spending another dollar. Here's a great example, a $5,000 credit card at 24% interest. Making only the minimum payments, it takes over 20 years to pay off and costs almost $10,000 just in interest on top of the $5,000 that you paid for whatever you used the credit card to buy. The opposite of that is also true. Let's say you invested a thousand dollars in the s and p 500 index and left it alone for 20 years. At average returns usually somewhere between seven and 10%. That becomes roughly $6,700 without you adding another dollar to it. It's the same mathematical force just working in different ways and giving you completely different outcomes. It's determined by what side of that equation you are on. And here's the deal. The rule that wealthy people apply, they eliminate anything where compound interest works against them as fast as they possibly can. Then they put as much as they can where it works for them. And here's the deal. Most people underestimate one of the most important variables of this, and that's time. There is a huge difference between starting to invest in your twenties versus starting to invest in your thirties. The outcome of that money as you get to, 50 55, 60, 65 years old is radically different, even if you're investing the same dollar amount starting later. ll give you less return back. And here's the deal, you can't buy back time. Every month of delay on the investment side has a cost, and every month of carrying high interest debt also has a cost. The best time to start was yesterday. The second best time is always today. And so an action you could commit today that will give you a little bit of insight on how this is impacting you. Pull up one of your credit card statements. If you're carrying a balance month over month, they will show you on there, if you're making the minimum payment, how long that will take you to pay off and how much interest you'll have to pay them. That number is probably going to scare you when you look at it. Quick pause for a second. If anything I've shared so far has hit a nerve, if you're carrying debt you can't seem to shake, or if you haven't started investing yet, or you're just not sure where you actually stand financially, I built something specifically for that. It's called the Financial Pulse Check. It's two minutes, seven questions, and it'll tell you exactly which money habit is costing you the most right now and what to do about it first. It's free. It's at netwealthnest.com/pulse, or you could just head over to our website, netwealthnest.com, and you'll see the floating bubble. And I'll drop the link in the show notes for you too. But just take it before you forget. One more time, that's at netwealthnest.com/pulse. All right, let's keep going Rule number two, assets. Put money in your pocket. Liabilities take money out. And most people, they confuse the two. It's not about net worth on paper, it's about monthly cash flow. Does this thing add to your pocket or does it subtract from it? Let's think about your car. A lot of people get confused. Your car is almost never an asset. It depreciates the moment you drive it off the lot, even if it's a used car, it's still gonna continue to depreciate in value. It costs you insurance, gas, maintenance, and also you're probably making a payment on it every month, it is a liability. This is not a reason to not own a car. It is a reason to buy a car that serves your needs, not the one that serves your ego and minimize what it costs you. Monthly. Wealthy people ask the question when they're looking at something like buying cars. What is this costing me and what is it giving me back? Before that purchase. Another example, the home, and this one is an incredibly debated one. A home you live in is more nuanced. It can build equity over time. And historically the housing industry has built 2, 3, 4, 5% value year over year. But that property, it still costs you more than what you just initially paid for it. But a home requires other things that most people don't think about right away, that it will cost you. You have things like property taxes, maintenance insurance, not just your monthly mortgage payment. A rental property. On the other hand, that generates more income than it costs every month. That's an asset. And understanding the difference changes how you evaluate both decisions. I am not telling you not to go buy a house. Real estate in general, and especially buying a house and holding onto that house, has been one of the easiest ways that Americans have built wealth over the long term. That does grow and appreciate over time, but you need to understand the other costs with it and understand that it has the potential to take money out of your pocket while you're paying that house. Off down the road when you sell it, there could be a boon where you recoup all of that money, plus some. Also, maybe not. It depends on what the housing market looks like at the time you go to sell. Historically, it has worked out in a positive fashion, but there are people that have experience bad things with buying a house and have been foreclosed upon and have lost the home, and have lost out on all of that growth and equity. It's about making the right decision, and that's where the mindset shift comes in. Wealthy people, they work to acquire assets and minimize liabilities. Then they are deliberate about which side of the ledger they're placing their financial decisions. And where it falls on doesn't mean they don't buy liabilities, they do. They're just very honest with themselves about it. And so before any significant purchase, you should be asking yourself, is this adding to my pocket or is it taking away from it? And then what is that trade off worth to me? Sometimes the answer is yes. A car that's $400 a month is worth it. If it's reliable transportation to a job that pays me well, sometimes it's no, and this is where that rule will help give you clarity and allow you to take a step back and actually make an educated decision. I would encourage you here to write down your five largest monthly expenses and label each one asset liability That clarity will help you start to look at how you are spending your money and where your money is going, and if it's worth what you're spending on those specific things, especially liabilities. All right. Rule number three, opportunity costs. That is a real thing. Every dollar you spend is a choice about what it will never become. This is the rule that wealthy people carry in their head on every financial decision, and most people, they've never even heard of the term opportunity costs. Define simply every dollar you spend today is also a decision about what that dollar will never be able to do in the future. This is not about guilt. It is about clarity on how you're spending your money. Here's an example. Let's say you spent $200 on something you forget about in a week versus investing $200 in 25 years at average, returns that $200 could be worth over $2,000. This is not a reason not to spend money. It is a reason to spend on things that actually matter to you, and then invest the rest. Wealthy people apply this rule daily. They're not cheap. They're usually intentional. They spend freely on things aligned with their values and their goals. They eliminate spending on the things that are not Before we wrap, here's what I want you to do. Everything I share on this podcast is meant to help you understand the game of money, but knowing where you stand in that game is actually what changes the next 30 days. That's why I built the financial pulse check at netwealthness.com/pulse. It's two minutes, a handful of questions. It'll show you whether the biggest leak in your financial life right now is your spending, your income, or your follow through. Because the fix is different for each one, and most people are working on the wrong one. I've been on the other side of this. I know what it feels like to be doing all the right things and still feel stuck. The pulse check is the same diagnostic I start every coaching conversation with. Take it. It's free. Netwealthness.com/pulse. All right, let's wrap it up So let's recap the three rules. Compounding your interest. It's either working for you or against you, and you are deciding with everything you do. You get to choose assets or liabilities. Know which side when you buy something, especially a larger purchase, which side of the equation is this falling on? And then lastly, opportunity costs. Every dollar. You're choosing it's future. It's either going to be spent and used up now on something, or it has the potential to do something else for you in the future. These three rules, they're typically not taught to most of us. They were available to people who grew up around wealth, had the right advisors, or stumbled to the right book at the right time. knowing the rules is just the beginning. Applying them, building the habits, and having people around you who are doing the same work. Well, that's what Netwealth Nest is all about. If today's episode was helpful, please like, subscribe, share this with someone who needs to hear this. You never know who in your life is waiting for this exact message. And tune in with us next time as we'll Talk about going and taking rule number one even further, and we'll show you exactly what wealthy people do with money when they have it, even just a small amount of it. Thanks for joining today. My name's Jim. Bye everybody. Net Wealth Nest LLC and Podcast is an educational platform committed to providing resources and information to empower individuals on their financial journey. Please note, we do not provide financial, tax, or investment advice. All financial decisions should be made in consultation with a qualified professional who understands your unique circumstances. Seeking personalized advice is a smart and necessary step before making any major financial commitments. Thanks so much for joining us today. If you found value in this episode, please like and subscribe to our YouTube channel, Net Wealth Nest, and leave us a review on your favorite podcast platform. We read every comment, and they help us improve and guide what topics we dive into next. And hey, if you-- something you heard today resonated with you, don't keep it to yourself. Share it with a friend, a family member, a coworker, your barber, your barista, even a stranger in line. You never know who might need this message. Remember, building net wealth is a journey, but you don't have to do it alone. Stick with us, and together, let's grow your net wealth nest.