You\u2019d think a billion-dollar company makes tons of income. But there are plenty of other examples in our funny world \u2014 things we perceive that don\u2019t actually reflect reality.<\/p>\n
What are some other money-related concepts that people usually confuse for each other?<\/p>\n
<\/span>1. Income vs wealth<\/strong><\/span><\/h2>\nPerhaps the easiest example of all: income and wealth are correlated, but they\u2019re not the same thing.<\/p>\n
You could be making millions of dollars a year, but if you don\u2019t manage your money well, you could still be broke AF. High income makes it easier for you to get\u00a0wealthy<\/a>, but only if you spend money the right way \u2014 by investing in good assets.<\/p>\nSpend it wrongly and the highway to poverty opens up, as plenty of high-income earners and even celebrities have learned. Similarly, people always get distracted by\u00a0shows<\/em>\u00a0of wealth \u2014 just because someone has a fancy car doesn\u2019t mean that person is rich. Instead, too many fancy cars puts people\u2019s finances in trouble.<\/p>\nAs the great\u00a0Morgan Housel<\/a>\u00a0says:<\/p>\n\u201cKeeping money is harder than making money, because you can get rich by luck, but staying rich is almost always due to a series of good, hard decisions.\u201d<\/p><\/blockquote>\n
<\/span>2. Price vs quality<\/strong><\/span><\/h2>\nPaying a lot for something doesn\u2019t mean you\u2019re getting high quality. Some of the best things in life are free. An example of this is a high-quality website vs an overhyped \u201ctraining\u201d course. You could probably learn more money sense from an amazing blog like\u00a0Of Dollars and Data<\/a>\u00a0than an expensive \u201ckeynote speaker\u201d whose true objective is for you to buy more courses.<\/p>\nAnother example of something cheap but super valuable: good\u00a0books<\/a>.<\/p>\nOf course, sometimes you\u00a0do<\/em>\u00a0need to pay for quality. Like a 5K MacBook works better and lasts longer than a 1K Chromebook.<\/p>\nI\u2019m just saying the link is not as direct as we\u2019d naturally think. Much value can be found in less-expensive things.<\/p>\n
<\/span>3. Frugal vs cheap<\/strong><\/span><\/h2>\nBut sometimes people take it too far. Instead of being wise with their money, they become cheap.<\/p>\n
The way I like to define frugal: spending money to maximize benefits, while preventing wastage. It\u2019s\u00a0not<\/strong>\u00a0about finding the cheapest possible option. Example: Warren Buffett, third richest man in the world is known for his\u00a0frugality<\/a>\u00a0\u2014 he has lived in the same house since 1958 and drives just a USD 44.6K Cadillac.<\/p>\nBut the dude also owns a private jet. Warren is not being a snob \u2014 flying by private jet just makes more sense for him. Given his age and billions, it\u2019s likely more expensive (time, money and health-wise) for him to fly normally.<\/p>\n
On the other hand, cheapness is looking for (often unethical) ways to not spend money \u2014 at any cost.<\/p>\n
Society hates cheapskates. Like your annoying friend who doesn\u2019t pay what he owes, pretending to forget he borrowed money. Or the creepy lady who steals toilet paper from office.<\/p>\n
Yes, at certain income levels the lines between cheap\/frugal get blurred. If you\u2019re\u00a0struggling<\/a>, it becomes very attractive to try and \u201ccheat\u201d your way into not spending money. I\u2019ve been cheap many times in my life too \u2014 ask my friends who found expired drinks in my fridge.<\/p>\nBut if ever in doubt, a\u00a0friend<\/a>\u00a0recently taught me this:<\/p>\n\u201cFrugality has dignity.\u201d<\/p><\/blockquote>\n
![\"\"](\"https:\/\/static.imoney.my\/articles\/wp-content\/uploads\/2019\/06\/Private-Jet.jpg\")
The best kind of frugality: splurge where it matters<\/p><\/div>\n
\n<\/span>4. Speculation vs investing<\/strong><\/span><\/h2>\nFirst, the similarity: you put money in and expect more money out later. So what\u2019s the difference between speculation and\u00a0investing<\/a>?<\/p>\nMoral considerations aside, I think the differences come in three ways: preparation, risk, and time frame.<\/p>\n
Speculation is putting money in high-risk things you don\u2019t know much about. You\u2019re not interested in learning, but hoping to get lucky. Quickly. Many would call this\u00a0gambling<\/a>.<\/p>\nInvesting is putting money in things where you understand the risks, and have done your homework. You\u2019re also not expecting your money to grow overnight, but giving it a longer time frame, like at least 3-5 years.<\/p>\n
Be careful \u2014 speculation is exciting, but usually leads to loss. Investing, on the other hand, getting rich steadily \u2014 that\u2019s a boring process.<\/p>\n
More on risk later.<\/p>\n
<\/span>5. Investing vs saving<\/strong><\/span><\/h2>\nSome of us want to play safe. Some of our parents got burned badly by risky investing behaviors so they give generally good advice: \u201cDon\u2019t gamble money in the stock market.\u201d<\/p>\n
But there\u2019s a downside to playing\u00a0too safe<\/em>. Trying to avoid\u00a0loss<\/a>, some of us take it to the extreme \u2014 thinking the only way to be responsible with money is to dump it into the bank.<\/p>\nBut over time, money in the bank doesn\u2019t grow much.\u00a0Inflation<\/a><\/em>\u00a0sucks, and it will eat away the value of your hard-earned money.<\/p>\nSave money. But also understand you can invest some portion of your money responsibly. You just need to understand risk.<\/p>\n
<\/span>6. Risk vs recklessness<\/strong><\/span><\/h2>\nBecause investing is a very personal thing: different people can handle different levels of risk. I don\u2019t buy individual stocks like how some of my super-impressive friends do, but I understand\u00a0Bitcoin<\/a>\u00a0more than most. For many, cryptocurrencies are super risky, but I\u2019m okay dipping a bit of my money in.<\/p>\nSome ways people can tell how much risk they can take:<\/p>\n
\n- Knowledge (if you have expertise in investing, you probably won\u2019t lose money so easily)<\/li>\n
- Income<\/a>\u00a0(if you earn more, you can handle more losses without disrupting your life)<\/li>\n
- Age (if you\u2019re younger, you have more time to get your finances ready for retirement)<\/li>\n<\/ul>\n
It bugs me to hell when people say \u201cyou SHOULD invest in X\u201d without discussing personal circumstances first. That\u2019s irresponsible.<\/p>\n
Risk and recklessness are just two different points along the same slope. What matters more is how you protect yourself, or as some in the corporate world would call it: risk management.<\/p>\n<\/div>\n
![\"\"](\"https:\/\/static.imoney.my\/articles\/wp-content\/uploads\/2019\/06\/2-Guys-Scaling-Building.jpg\")
High risk, (maybe) high returns \u2014 but what\u2019s your backup plan?<\/p><\/div>\n
\n<\/span>7. Profit vs legitimacy\u00a0<\/strong><\/span><\/h2>\nNumber #1 way people judge whether an \u201cinvestment\u201d is dodgy or not: \u201cDid you make money from it?\u201d<\/p>\n
Better ways to judge whether an investment is dodgy AF:<\/p>\n
\n- Does it\u00a0promise<\/em>\u00a0you unrealistic profits? (Real investments never promise you anything. They may tell you targeted returns are 10% per year, but they\u2019ll\u00a0never<\/em>\u00a0guarantee it. Also, be super cautious about anything that aims to make more than 12% per year. That 20% per month \u201cinvestment\u201d you hear about is a\u00a0scam<\/a>.)<\/li>\n
- Does the business model make sense?<\/li>\n
- Is there some sort of protection for investors?<\/li>\n
- Do you have to make other people sign up, and are your \u201cprofits\u201d dependent on how many new people you get to join?<\/li>\n
- What are the government\u2019s\u00a0rules<\/a>\u00a0around it?<\/li>\n<\/ul>\n
Just because your friend made money from something doesn\u2019t mean it\u2019s legitimate. Maybe he got in early, and is now profiting from the mistakes of poor, less-educated people. Maybe he\u2019s dishonest.<\/p>\n
We forget that the process is often more important than the result.<\/p>\n
<\/span>8. Confidence vs competence<\/strong><\/span><\/h2>\nA lot of people sell their \u201cguaranteed\u201d systems as if they were the cure to cancer. The bitter truth: Even if there was a \u201ccure\u201d for cancer, there are no guarantees. Only probabilities.<\/p>\n
Our flaw: we\u2019re all attracted to people who display bulletproof confidence and charisma. But just because someone can speak well in front of an audience doesn\u2019t mean they know what they\u2019re talking about. History is filled with stories of conmen who got rich off the backs of hardworking people \u2014 by playing the confidence game.<\/p>\n
On the other hand, people with\u00a0expertise<\/a>\u00a0are usually full of doubts. Because they question everything.<\/p>\nBe careful who you listen to. As your mother told you:<\/p>\n
\u201cEmpty vessels make the most noise.\u201d<\/p><\/blockquote>\n
Spend it wrongly and the highway to poverty opens up, as plenty of high-income earners and even celebrities have learned. Similarly, people always get distracted by\u00a0shows<\/em>\u00a0of wealth \u2014 just because someone has a fancy car doesn\u2019t mean that person is rich. Instead, too many fancy cars puts people\u2019s finances in trouble.<\/p>\n As the great\u00a0Morgan Housel<\/a>\u00a0says:<\/p>\n \u201cKeeping money is harder than making money, because you can get rich by luck, but staying rich is almost always due to a series of good, hard decisions.\u201d<\/p><\/blockquote>\n Paying a lot for something doesn\u2019t mean you\u2019re getting high quality. Some of the best things in life are free. An example of this is a high-quality website vs an overhyped \u201ctraining\u201d course. You could probably learn more money sense from an amazing blog like\u00a0Of Dollars and Data<\/a>\u00a0than an expensive \u201ckeynote speaker\u201d whose true objective is for you to buy more courses.<\/p>\n Another example of something cheap but super valuable: good\u00a0books<\/a>.<\/p>\n Of course, sometimes you\u00a0do<\/em>\u00a0need to pay for quality. Like a 5K MacBook works better and lasts longer than a 1K Chromebook.<\/p>\n I\u2019m just saying the link is not as direct as we\u2019d naturally think. Much value can be found in less-expensive things.<\/p>\n But sometimes people take it too far. Instead of being wise with their money, they become cheap.<\/p>\n The way I like to define frugal: spending money to maximize benefits, while preventing wastage. It\u2019s\u00a0not<\/strong>\u00a0about finding the cheapest possible option. Example: Warren Buffett, third richest man in the world is known for his\u00a0frugality<\/a>\u00a0\u2014 he has lived in the same house since 1958 and drives just a USD 44.6K Cadillac.<\/p>\n But the dude also owns a private jet. Warren is not being a snob \u2014 flying by private jet just makes more sense for him. Given his age and billions, it\u2019s likely more expensive (time, money and health-wise) for him to fly normally.<\/p>\n On the other hand, cheapness is looking for (often unethical) ways to not spend money \u2014 at any cost.<\/p>\n Society hates cheapskates. Like your annoying friend who doesn\u2019t pay what he owes, pretending to forget he borrowed money. Or the creepy lady who steals toilet paper from office.<\/p>\n Yes, at certain income levels the lines between cheap\/frugal get blurred. If you\u2019re\u00a0struggling<\/a>, it becomes very attractive to try and \u201ccheat\u201d your way into not spending money. I\u2019ve been cheap many times in my life too \u2014 ask my friends who found expired drinks in my fridge.<\/p>\n But if ever in doubt, a\u00a0friend<\/a>\u00a0recently taught me this:<\/p>\n \u201cFrugality has dignity.\u201d<\/p><\/blockquote>\n The best kind of frugality: splurge where it matters<\/p><\/div>\n First, the similarity: you put money in and expect more money out later. So what\u2019s the difference between speculation and\u00a0investing<\/a>?<\/p>\n Moral considerations aside, I think the differences come in three ways: preparation, risk, and time frame.<\/p>\n Speculation is putting money in high-risk things you don\u2019t know much about. You\u2019re not interested in learning, but hoping to get lucky. Quickly. Many would call this\u00a0gambling<\/a>.<\/p>\n Investing is putting money in things where you understand the risks, and have done your homework. You\u2019re also not expecting your money to grow overnight, but giving it a longer time frame, like at least 3-5 years.<\/p>\n Be careful \u2014 speculation is exciting, but usually leads to loss. Investing, on the other hand, getting rich steadily \u2014 that\u2019s a boring process.<\/p>\n More on risk later.<\/p>\n Some of us want to play safe. Some of our parents got burned badly by risky investing behaviors so they give generally good advice: \u201cDon\u2019t gamble money in the stock market.\u201d<\/p>\n But there\u2019s a downside to playing\u00a0too safe<\/em>. Trying to avoid\u00a0loss<\/a>, some of us take it to the extreme \u2014 thinking the only way to be responsible with money is to dump it into the bank.<\/p>\n But over time, money in the bank doesn\u2019t grow much.\u00a0Inflation<\/a><\/em>\u00a0sucks, and it will eat away the value of your hard-earned money.<\/p>\n Save money. But also understand you can invest some portion of your money responsibly. You just need to understand risk.<\/p>\n Because investing is a very personal thing: different people can handle different levels of risk. I don\u2019t buy individual stocks like how some of my super-impressive friends do, but I understand\u00a0Bitcoin<\/a>\u00a0more than most. For many, cryptocurrencies are super risky, but I\u2019m okay dipping a bit of my money in.<\/p>\n Some ways people can tell how much risk they can take:<\/p>\n It bugs me to hell when people say \u201cyou SHOULD invest in X\u201d without discussing personal circumstances first. That\u2019s irresponsible.<\/p>\n Risk and recklessness are just two different points along the same slope. What matters more is how you protect yourself, or as some in the corporate world would call it: risk management.<\/p>\n<\/div>\n High risk, (maybe) high returns \u2014 but what\u2019s your backup plan?<\/p><\/div>\n Number #1 way people judge whether an \u201cinvestment\u201d is dodgy or not: \u201cDid you make money from it?\u201d<\/p>\n Better ways to judge whether an investment is dodgy AF:<\/p>\n Just because your friend made money from something doesn\u2019t mean it\u2019s legitimate. Maybe he got in early, and is now profiting from the mistakes of poor, less-educated people. Maybe he\u2019s dishonest.<\/p>\n We forget that the process is often more important than the result.<\/p>\n A lot of people sell their \u201cguaranteed\u201d systems as if they were the cure to cancer. The bitter truth: Even if there was a \u201ccure\u201d for cancer, there are no guarantees. Only probabilities.<\/p>\n Our flaw: we\u2019re all attracted to people who display bulletproof confidence and charisma. But just because someone can speak well in front of an audience doesn\u2019t mean they know what they\u2019re talking about. History is filled with stories of conmen who got rich off the backs of hardworking people \u2014 by playing the confidence game.<\/p>\n On the other hand, people with\u00a0expertise<\/a>\u00a0are usually full of doubts. Because they question everything.<\/p>\n Be careful who you listen to. As your mother told you:<\/p>\n \u201cEmpty vessels make the most noise.\u201d<\/p><\/blockquote>\n<\/span>2. Price vs quality<\/strong><\/span><\/h2>\n
<\/span>3. Frugal vs cheap<\/strong><\/span><\/h2>\n
<\/span>4. Speculation vs investing<\/strong><\/span><\/h2>\n
<\/span>5. Investing vs saving<\/strong><\/span><\/h2>\n
<\/span>6. Risk vs recklessness<\/strong><\/span><\/h2>\n
\n
<\/span>7. Profit vs legitimacy\u00a0<\/strong><\/span><\/h2>\n
\n
<\/span>8. Confidence vs competence<\/strong><\/span><\/h2>\n