By: Martins Itua, email@example.com
“Start thinking and doing the right things to increase your financial intelligence quotient”
- Developing financial intelligence will help you overcome the limitations of a financial poverty stricken mind-set.
- You must be financially savvy in order to manage your finances and take your business to the next level.
- Financial intelligence requires you to be able to calculate profitability, leverage, liquidity and efficiency ratios and understand the meaning of the results.
- Understanding the foundation, understanding the art of finance and understanding financial analysis – are key.
- You can be smart and make a good income but have a low financial IQ -you handle money irresponsibly
- Build upon your foundation to enable you understand and interpret complicated financial information
Financial intelligence (FININT) provides you with the tools and skillset that determine your financial wellbeing and that of your business enterprise. Developing financial intelligence will help you overcome the limitations of a financial poverty stricken mind-set and move you forward to greater wealth and abundance in life.
As an individual, there are certain financial decisions that will bring deep holes in your pocket and you ought to develop financial intelligence to be able to make better spending decisions. As a business owner or entrepreneur, you must be financially savvy in order to manage your finances and take your business to the next level. We are born with certain natural abilities such as eating, talking, etc. but no one is born with financial intelligence, so we must deliberately acquire the skills. We are also not taught in schools and neither do our parents teach us how to be financially savvy or intelligent. So it is possible to have gone to school and still be financially unintelligent.
Broadly speaking, financial intelligence is broken into three areas: understanding the foundation, understanding the art of finance and understanding financial analysis.
Understanding the foundation. Financial intelligence requires a proper understanding of the basics of financial measurement i.e. income statement, balance sheet and cash flow statement. It also means that you will need to understand the difference between cash and profit and why a balance sheet balances. Many people run away from numbers and usually hire finance professionals to handle this part of their business or manage their money and investments. You ought to start learning yourself and building your foundation to enable you understand and interpret complicated financial information.
Understanding the art. Financial intelligence ensures that people are able to identify where the artful aspect of finance have been applied to the numbers and know how applying them differently might lead to different conclusions.
Understanding financial analysis. Financial intelligence includes the ability to analyse the numbers in greater depth. For example, it requires you to be able to calculate profitability, leverage, liquidity and efficiency ratios and understand the meaning of the results. FININT also includes conducting return on investment (ROI) analysis and interpreting the results.
To be financially successful, you will have to know your financial intelligence quotient (IQ). We are born with a certain IQ which assesses our overall intelligence level. We also have an emotional IQ which measures our ability to control our emotions. Our financial IQ is a measure of our financial intelligence, i.e. how well we do with money.
Having a high financial IQ means the most when it brings us financial success. You can be smart and make a good income but have a low financial IQ, meaning you handle money irresponsibly. A high financial IQ means you make smart financial decisions and take the right action to better your financial circumstances. People with high financial IQ understand exactly what to do when it comes to managing their money.
According to Robert Kiyosaki, author of the bestselling book, Rich Dad, Poor Dad, It is not real estate, stocks, mutual funds, businesses, or money that makes a person rich, it is information, knowledge, wisdom, and know-how, a.k.a. financial intelligence, that makes one wealthy. He explained further that “buying a new set of golf clubs won’t improve your game, but paying for lessons will”.
Kiyosaki divides financial intelligence into Five Financial IQs” namely:
Making more money: This is measured by how much money you earn. If you make N10m a year, you have a higher financial IQ than someone earning N5m a year.
Protecting your money: Once you earn your money, you need to hold onto it. Protecting your money, especially from tax, is the second Financial IQ.
Budgeting your money: Being able to live well and still invest no matter how much you make requires a high level of financial intelligence. This financial IQ is measured by how much money you have left after expenses.
Leveraging your money: This financial IQ is measured by return on investment. How well do you make your budget surplus generate more money?
Improving your financial information: Financial information doesn’t just mean knowledge of basic financial concepts — it also means detailed knowledge of the investments you make.
Here are four ways to begin building your financial IQ today:
Stop avoiding: Stop running from numbers because they determine your financial happiness. You will not go far in your career and business as long as you avoid learning how to handle the complicated numbers and financial ratios. Working on bettering your relationship with money will increase your financial IQ.
Educate yourself: Even though it is easier to hire someone to handle your financial dealings, it also helps to understand how to change the way you behave with money. Notice how you behave with your money and what decisions you make every day and how they affect your financial situation. Commit to engaging in only those behaviours that benefit you. This will increase your financial IQ.
Change your thoughts: It is often our thoughts that keep us in a place where we are not growing intellectually. To increase your financial IQ and feel financially successful, you will need to deliberately change your mind-set. Start thinking more about building wealth than the next expensive thing you think you just cannot live without. When the focus is on spending, it keeps your financial IQ low, but when you start thinking about how to have more money, you will increase your financial IQ and start making decisions which follow that mind-set. Getting smarter means thinking smarter.
Spend your time wisely: Increasing your financial IQ involves allocating time to actually doing the work required to live healthier with money. To be well with money, you will need to do well with money. Freeing yourself of debt will increase your financial IQ, so too will controlling your everyday spending. Instead of waiting and wondering whether you can afford what you want, take time each month to plan out your finances by writing down exactly what money comes in and exactly how you will choose to spend that money. Doing this gives you greater control over your money.
It is clear that you do not require a Harvard MBA to build your financial intelligence quotient. You will need to start thinking and doing the right things today and you can be on your way to increasing your financial intelligence quotient and live a better and more financially fulfilling life.