3 Expensive Costs of Being Financially Ignorant

“If you think education is expensive… try ignorance.”

The most expensive money mistakes are the ones you have no idea you’re making. When it comes to financial education, it is easier to prefer “free” ignorance over having to pay for education. The consequence of this is a short-term gain (savings) with a long-term pain (bad financial decisions).

In this article, my goal is to simply share with you the 3 biggest and most expensive costs of ignorance. They are listed below in order of increasing gravity. As you further go down the list, the costs are going to get more and more painful. And honestly, I started writing this article not knowing how “costly” ignorance is… but now that I’m done with it, it’s actually pretty scary. With that said, let’s get started!

1. Investing in Depreciating Assets

Depreciation is defined as the reduction in value of the product or service we pay for as time passes. The food we eat is instantly depreciated the moment we eat it. A cell phone is fully depreciated within 3 years of its purchase. A brand new car immediately loses a significant amount of its value the moment you drive it, and further decays over 10 years. Different things have different ‘depreciation periods’.

Now, the things we own can either depreciate or appreciate. And if everything you own depreciates, then you are very sick financially. It means that becoming wealthy will be extremely difficult because everything you own is slowly using its value.  Imagine trying to go up in an escalator that’s going down — this is the same situation of trying to become wealthy while accumulating too much depreciating assets.

REAL Investments can either do two things: (1) increase your ability to earn or (2) increase in value over time. If the answer to both questions is no, then it’s not an investment but simply a long-term expense.

Now, just to clarify – depreciation is not really a bad or good thing. It’s just a fact of life (and accounting). Depreciation however, becomes dangerous when you think what you’re buying is an investment, when it’s really just an long-term delayed expense. 

So the answer here is to have a good mix of assets that appreciate and some that you would really need to use in your life. And at the very core of it, how can you tell what investments are good for you? The answer is financial education.

2. Entering Bad Deals (and Being Afraid of Good Ones)

This cost has two parts: First is not being able to stay away from scams. The second is staying away from REAL and GOOD opportunities. Let’s take on the scam part first.

I believe that all of us are familiar with the typical scam story. Hard-working employee gets invited to invest into a business that promises high-returns without much effort. Friends and family encourage him to do so, because they have made money in it. The employee invests his life-savings into it. The rest is history – company turns out to be a scam, and all the money is lost.

It has happened over and over again: AmanFutures, Enron, Madoff Investment. Thousands of Filipinos losing millions of pesos. And frankly: these kinds of bad deals and investments will ALWAYS be there. No matter how strict or thorough the government becomes, scams will always be there. The only way to stop being scammed is to get educated and learn what kinds of businesses and investments are actually legal, moral, ethical, and sustainable.

Instead of asking, “Is _____ a good investment/business?,
ask, “what is it that makes a good investment and business?”

(Analogy: Instead of asking what is 2+2? the better question is how do I add numbers?) 

Now, personally, scams are OK since at least you learn from it. And you can always earn back the money. The dangerous part about scams is exactly WHAT you’ll learn about it. You could learn in a positive way, wherein you educate yourself more on why it failed. OR you could learn in a negative way and simply SHUT OUT all possible opportunities (even the good ones). This is where the second part comes in….

Because of a FEAR of being scammed, some people have closed themselves to ALL forms of opportunities. This is where you will hear conversations like:

Son: Dad, nag aaral ako mag invest sa stock market.
Dad: Wag anak! Nalugi na ako dyan. Sa bangko mo lang lagay ang pera mo para safe. 

What’s the cost of this conversation?

In the Bank: P100,000 left for 30 years becomes P134,000
In the Stock Market: P100,000 can grow to P3,900,000.

Cost of Ignorance; P3,900,000 – P134,000 = P3,766,000!!!

Or it could also be….

Friend 1: Hey, open ka ba sa part-time income opportunities?
Friend 2: Ano yan? Network Marketing yan no? Ayaw ko niyan, allergic ako diyan.

What’s the cost of Friend 2 being ‘allergic’?

Well personally, I’ve had the privilege of having a friend who has been working hard at building his network marketing business for a little over 3 years. Today he enjoys financial freedom and earns an easy 6-figure income every single month. Best of all, he’s trained hundreds of other people on how they can grow their businesses as well. (I just feel bad for the friends he invited 3 years ago and refused because they were “allergic”. It’s amusing how an “allergy” (ignorance) could cost you a solid six-digit monthly income).

NOW JUST TO CLARIFY:

Some people lose money in the stock market and some network marketing companies are actually scams. (I know because, I’ve been there and done that.) But the only way you’ll be able to distinguish them and actually be successful is if you EDUCATE yourself financially. Learn the answers to the following questions:

  • What do I need to know in order to make money in the stock market?
  • What is it that separates a good network marketing company from a bad one?
  • What do I need to develop (within myself) so I can succeed in X business opportunity?

Remember that:

“There are good and bad opportunities out there.
The biggest risk is not knowing the difference.”

3. Missed Opportunities (because of a lack of preparation)

In any competition, everyone wants to win, and everyone will ‘give their best’. The big question that actually separates the 1st place from the rest is is how well they prepared (weeks, months and years) BEFORE the judgement day itself. Financial Opportunities work in the same way. Everyone wants to HAVE them, but only a few are actually able to take advantage. Think of the following scenarios….

Your friend with a several successful restaurants is about to expand in another location. She is looking for investors, and the minimum amount in order to participate is P200,000.

Regardless of whether the restaurant will succeed or not….
Do you have the P200,000 so you at least have the CHOICE of investing?

You are looking for investors for your OWN business…

Regardless of whether the business will succeed or not….
Do you know people who are a LOT more financially successful than you?

and regardless of whether you know wealthier individuals….
Do you have the basic skills for running a business so they will gladly invest in you?

It’s really painful to have to miss an opportunity because you were unprepared. Because usually one single opportunity can lead to a few more, and those few will lead to a lot more. Now in general, there are 3 resources that you should always continue to build: (1) Your Money, (2) Your Skills, and (3) Your Network.

  • Your Money – Every peso you spend today means one less peso for a possible opportunity in the future.
  • Your Skills – The money you get is directly proportional to the value you provide to others.
  • Your Network – The ultimate form of leverage is using OPT and OPM (Other people’s time and other people’s money)…. So to use this, you must know…. other people!

Lacking money, skills and a good network is a huge barrier to success. And right now, you can choose to make this an excuse or make it a motivator.

If you don’t have P5,000 to start investing… which of the two lines will you say:

  • I don’t have P5,000 today so I can’t invest yet. (then repeat this line for the rest of your life)… OR
  • I don’t have P5,000 today, so I’ll learn how to earn more money, and save and budget so in the future, I’ll be able to invest.

Now, this article has become pretty lengthy already, so we’ll end it here. I’m sure you already get the picture of what you’re paying for due to ignorance. But before we end I have some bad news for you: Reading this article alone won’t really help you financially. There is still a lot more to learn, but the good thing is now you know WHY you have to learn them. Seek financial education, and great financial results will follow.

Education may cost you something a little extra. A good book on financial education ranges from P500 to P2,000. Seminars will cost from P1,000 to P5,000. Business courses will cost P10,000 to P50,000. But these are very small prices to pay when you compare them to the cost of ignorance.

So make it a point to gain financial education. Being ignorant is like being sick with a dreaded illness, whose only viable cure is financial education. Heal yourself, pay for your medicine. Get financially educated.

With this, I invite you to my join in my premium online seminar called the “Game of Wealth“. (You’ll get online access to 7+ hrs worth of video training on how to win the game of wealth). The details of it can be found here. And if you’ve already watched that, then here’s the sign-up page.

Like our Facebook page, for even more practical and bite-sized bits of financial knowledge.

1 Comment