MicroVenture Marketplace – Angel Investing Private Equity and Crowd funding by Microventures

“Crash diets don't work. They don't work for losing weight, they don't work for making sales quota and they don't work for getting and keeping a job… the reason they don't work is that they don't change habits, and habits are where our lives and careers and bodies are made.”

– Seth Godin

Habits are also where wealth is made. It would be absurd for a fit person with a six-pack to tell you they got that way because of a “great workout opportunity.” No they didn’t. They got that body because of a daily exercise habit. But for whatever reason, most people don’t see the correlation between their financial habits and their net worth. Personally, I think it’s because most people don’t want to do the hard work to create wealth.

But if you’re willing to do the hard work and invest 30 minutes a day to exercising your mind – specifically your financial intelligence – you can grow your business and increase your net worth. As you acquire more financial intelligence you can make smarter decisions with your money and investments.

Before we get into the how to increase your financial intelligence let’s first define what it is:

Financial intelligence: is the knowledge and skills gained from understanding finance and accounting principles in the business world. Although a fairly new term, financial intelligence has its roots in organizational development research, mostly in the field of employee participation. Financial intelligence is not an innate skill; rather it is a learned set of skills that can be developed at all levels (emphasis mine).

Since financial intelligence is a skill that can be developed the next logical question is, “How do we develop it?” While there are many ways to increase your financial intelligence I’ve provided three tactics below. And remember, the habit you’re forming is more important than the specific action.

Read Financial Books

The average book is about 60,000 words long and the average person reads 200-250 words per minute. Therefore most people take between four to five hours to read a book. So if you get into the habit of reading 30 minutes a day then you will read about 40 books a year. Imagine how much better equipped you’d be to make business decisions if you read 40 financial books next year.

I must say something else on the topic of reading. Reading just to read will not benefit you much. Instead, read with the goal of understanding new concepts and ideas. And if you’re reading financial books that may take longer to do so you might only digest 15-20 books a year. But you’ll be better off reading in a way where you comprehend the subject matter versus speed reading through 40 books and only walking away with a general idea.

And when you read get into the habit of making notes, highlighting certain pages or writing a book review when you’re finished. Do whatever works best for your learning style.

Learn How To Read Financial Statements

If you can learn how to read financial reports and financial statements you’ll be in a better position to answer questions like:

• Will I have enough cash to make payroll next month?
• What’s the burn rate for my startup? How fast am I going through cash?
• How profitable is my company? How profitable is this particular product or service?
• What’s the likely ROI if I were to buy this new piece of equipment or do this particular marketing campaign?

So as you embark on your new financial intelligence habit one of the activities you may choose to fill your 30 minute time slot with would be reading and understanding financial statements.

According to the SEC there are four main types of financial statements:

1. Balance Sheets
2. Income Statements
3. Cash Flow Statements
4. Statements of Shareholders’ Equity

As you become competent in your ability to read and understand financial statements you’ll begin to see why your net cash in a given time period is not the same thing as profit (which is why you need profit and cash). And you’ll also learn how to manage working capital, which helps you improve the cash flow and profitability of your company even with no changes in sales or expenses. Plus you’ll discover how to determine the value of your business or a business you’re considering investing in.

Engage In Financial Discussions

As you seek to increase your financial intelligence it’s critical you do more than just read books and financial statements. While reading is important it’s not enough. To really take your financial education to the next level it’s important to engage in financial discussions with people who are more financially intelligent than you.

Don’t be intimidated by them either. Remember they didn’t start off knowing everything. They had to learn just like you. You could find these people online or offline. You may choose to talk to you accountant, a serial entrepreneur or a venture capitalist. Take them out to lunch and pick their brain. Most people are glad to share what they know, especially once they realize you’re not trying to sell them anything.

When Will You Start?

If you want to increase your level of financial intelligence then consider committing 30 minutes a day to increasing your financial intelligence.

And like any habit, it’s important to pick a start date and end date. You may want to do this for 60, 180 or 365 days. Don’t sell yourself short by committing to a measly 21 days. I know many people say it only takes 21 days to form a new habit but that’s a myth. According to scientific research a habit takes 66 days on average to form for most people. That’s why I suggest doing this for at least two months.

Remember, habits are where our lives, careers, bodies, and wealth are made. Don’t wait around for that “great opportunity.” Go out and make your own luck instead.