Doesn't matter when it comes to personal economy, economy of business or economy of a country, I have never met even one person who knows more about economy than I do.
I mean, there are bunch of people out there who don't even know concept of "maximize income, minimize expenses" as foundation of wealth growth.
And that's just foundation, which most people seem to be utterly unaware of.
I see people with more income than me who are somehow still poorer than me, because income size doesn't really mean anything if you don't manage expenses.
You could give an average poor person 40000$, and in about a year, that poor person would be still poor, maybe even poorer than he was before he got 40000$.
Business likewise. Business which doesn't manage expenses, doesn't matter what it's income is.
Same applies to a country. A country which can't reduce expenses in a budget, but keeps increasing them, can only face debt.
Income rise itself is actually mostly irrelevant in the whole story, because most people increase their expenses as their income rises, so they are actually not being made richer.
Wealth growth = Income minus expenses
This is foundational equation.
If you keep increasing your expenses with your income, growth of your wealth won't rise.
Now, a lot of people make all sorts of different economical mistakes, few of them being:
- Not having large savings
- Not doing safe investments
- Buying things with negative value growth over time
- Doing bad spending
- Not trying to reduce costs maximally
- Not trying to increase income maximally
These are just some of foundational mistakes people make.
A classical mistake in investing, for example, is panic sell.
Panic sell is when, for example, person who bought silver, sees that silver is currently dropping in price, and person out of fear sells silver.
From a very short term point of view, panic sell seems to be a good choice. Long term its a pretty crappy choice because prices of all things go up and down many times over long time.
When price of silver goes down, that doesn't actually mean you are supposed to sell your silver. It means quite the opposite. You are supposed to buy more before price rises again.
Because we know that prices of all things go up and down many times over a long period, the goal is buying when price goes down.
Another classical mistake people generally make is not optimizing their shopping.
For example, chasing best prices in only one store is a pretty obvious example of narrow vision.
I can walk into one store unprepared, and then pick what I think is their best offer. But this isn't optimized shopping because some other store might have a better offer.
In fact, online stores and market places tend to pretty much beat local stores in prices.
Another mistake people make is wanting to buy new things.
New things are usually more expensive than used things, so their economical payoff isn't good unless "new" comes with some great extra quality, which usually isn't the case.
Rent is probably one of biggest mistakes a person makes. Living under rent long term is always more expensive than owning a home, so it's economically a dumb decision to make.
Another extremely dumb decision is going in debt.
Debt is by it's definition a net negative wealth, so in most cases it's a pretty dumb choice.
When it comes to investments, most people seem to be entirely clueless about them.
Most profitable investment is usually business with high predicted success rate. Having multiple different businesses is actually greater safety net.
Diversity of investments principle pretty much translates to diversity of businesses as well, also diversity of income, diversity of savings, and negative diversity of expenses. You are supposed to have less sources of expenses, as well as seeking to reduce each source which cannot be entirely removed.
So the foundational principle remains same:
"Maximize income, minimize expenses",
With a slight adding:
"Maximize diversity of income, minimize diversity of expenses."
Everyone likes to buy things, but investment is buying things which gain or hold value over time.
Expense is buying things which lose value over time.
So a basic equation for spending money would be:
"Maximize buying things which gain or hold value over time. Minimize buying things which lose value over time".
A classical example of buying things which lose value over time is food.
Food disappears once you eat it, so it loses all it's value. People make two economical mistakes when buying food.
Mistake number one when buying food is not having a food stockpile. Buying small quantities of food each time means that you have to go buying food more often, spending more money on transport. Further, because price of food rises over time, having a stockpile beats inflation better, where buying bit by bit is much more affected by inflation.
Mistake number two which people make when buying food is usually buying more than they need and eating more than they need. When you see a fat person struggling financially, you can probably conclude that the problem is in their belly. Another part of this mistake is diet. Some diets are way more expensive than others. Highly meat based diet is always way more expensive than vegetarian diet. Fast food and cooked food is likewise more expensive. Cheapest possible foods are foundational foods. They are foods more complicated food is made of. You will generally pay more for spinach pie than you would pay for spinach and oil used to make it. This is because person who makes the pie takes the cut beyond foundational costs of individual elements. So buying foundational is always cheaper than buying complex.
When shopping, the best price is always determined by comparing all options, their quality and price. This is why buying from only one shop is guaranteed to be losing money, and ignoring online buying likewise loses money any time online is cheaper.
Further, having savings in money form is usually useless because those savings lose value over time due to inflation. Good land, good property, gold, silver and objects or items which gain value over long time are always guaranteed to increase savings long term compared to their money form.
Another mistake people make is not negotiating price, or buying from places where price cannot be negotiated. There are even countless negotiating tactics, such as coming to buy with a limited amount of money, so seller is forced to accept your deal or you just walk away.
These are just some of countless examples of what average person is illiterate about. I could probably name a thousand more, but then we would already be getting into master area.
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