The 4 Forces of Financial Struggle

You can work incredibly hard your whole life and still never be free from financial struggle. What are the forces that seem to be conspiring against you? Are they in your control? Will they ever be in your control? Is the real reason why you’re suffering anything to do with you?

In any situation, there are both internal and external forces at play that lead to a predicament that’s seemingly out of our hands. But before we tackle the external forces of the ‘big bad world’, let’s take stock of our internal factors.

Internal Factors

Money Mindset

Study hard, work hard, get a good job, buy a house and a car and live ‘happily ever after’. A vast majority of people I know still live and die by this adage. In more traditional societies, women are encouraged to ‘get a husband with a good job who can buy a house, a car and live….”

Well, you can finish that sentence. Neither a job nor a husband will guarantee any kind of happily ever after.

If you want to be free from financial struggle, you need to invest in assets. An asset is something a business or an individual derives economic value and/or future benefits from. An asset can be both tangible or intangible. Whilst cash may be king–if it’s sitting in your bank account doing nothing, you should probably put it to work.

We need to invest our cash in worthwhile undertakings. This could be anything from starting a business, investing in long-term tangible assets such as: a house, a machinery that leads to increased productivity and even stocks. You could even invest in intangible assets like copyright, software, patents etc etc.

The real question is: what is it worth now and what is it going to be worth in the future. In chasing after momentary returns, many of us lose sight of the long-term benefits that an asset could potentially provide.

At the end of the day, be mindful that we’re investing in an asset’s future returns.

Discipline

In accounting, there is a difference between a current asset and a long-term asset. A current asset typically has a lifespan of less than a year; whereas a long-term asset is one that is held on a company’s balance sheet over many years.

I’ve lost track of the number of times I’ve heard investors say, ‘We hold a long-term view over our investments.’ In the case of riskier investments such as stocks or new business ventures, it is never wise to jump ship too soon. If you’re looking to cash in on a new venture too quickly, I say hold the brakes. Online e-retail giant Amazon was in the red for seven years before they cut a profit. You will just have to wait till the asset matures.

On the other hand, if you can foreseeably envision losses continuing to occur in the future–due to either a lack of strong fundamentals or industry trends–then yes, do cut it out of your portfolio. By getting rid of current assets that impede future growth, you make room for future assets that are more likely to bring in a stream of future revenue.

Long story short: you need to have the discipline to invest your current assets into long-term assets.

External Factors

Taxes

Taxes are compulsory. Both individuals and corporations have to pay them. These taxes could be local, regional or national. Why do we need to pay taxes, you may ask as you look at the big bill that you got slapped with for what is seemingly no reason at all. Taxes finance government activities. From roads, to libraries, to the lights that line the road at night. All of these things are financed by taxpayers’ money.

The most common types of taxes:

1. Income Tax—a percentage of your earned income
   
2. Corporate Tax—a percentage of corporate profits
   
3. Sales Tax—levies on goods and services
   
4. Property Tax—on the value of land and property assets
   
5. Tariff—taxes on imported goods
   
6. Estate tax—the infamous ‘death tax’ that the inheritor of a property needs to pay to the government

Whether we like receiving that bill or not, the truth is, taxes are here to stay. So instead of looking at your gross earnings at the end of the year, it’s best you turn your attention to your net earnings and consider that your income.

Debt

If you’ve borrowed from the bank to finance your home, your car, your business or really anything that required you to tap into a sum of money you didn’t have–you need to ask yourself the question–do you own your asset or does your asset own you? How much have you paid, what is the asset worth now and what will it be worth in the future? In addition to the collateral that was given in exchange for security, let’s not forget that you also need to pay interest on the principal sum that you borrowed.

If you’ve purchased a car, a fancy new gadget or even a designer handbag–and you’ve bought it by borrowing–you’ve essentially purchased a depreciating asset. It will most likely not increase in value anytime soon–unless it unforeseeably ends up as a collectors item at a museum a few hundred years down the line. But who has the time to wait that long?

In the case of a house, it could be an appreciating asset–but who knows, really. In the event that you lose your job (or any source of income) that enables you to make that payment, the bank can repossess the asset that you put on the line as a collateral.

So before you get yourself into debt over any acquisition, it’s best that you ask yourself if the cost of the debt is actually worth it. Again, it comes down to the future returns that we are seeking to generate from any asset.

Concluding Remarks

We can blame taxes and debt for all the ills in the world. But they’re not the driving force behind our financial future. We are.

By changing our mindset, our spending habits and investing in assets–we can stop struggling and reclaim our financial future.

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About the Author

Dipa Sanatani is the Publisher at Mith Books and the author of The Little Light and The Merchant of Stories. In The Merchant of Stories, Dipa takes the reader on a personal journey–narrated through a series of candid journal entries–on what it takes for entrepreneurs and creatives to start their very first venture.