The Moment Everything Changed

Like many of us, I spent years avoiding dealing with my finances. The familiar chorus of messages from my childhood echoed in my head: "You're not good at that." Combined with my own limiting beliefs – "I have no idea about finances" – I found myself stressed out by financial anxiety and avoided topics such as retirement planning.

The reality wasn't that I was inherently bad with money. I was simply overwhelmed.

So when a friend recommended consulting a financial advisor, I initially felt relief. Finally, someone else could handle this complexity! But that relief quickly turned to suspicion when I sensed the advisor might be taking advantage of my financial naivety. This potential exploitation became my greatest motivator.

As a researcher, I decided to do what I had been trained to do: research. This decision transformed not just my bank account, but my entire relationship with money.

The European Financial Literacy Crisis

What I discovered during my research journey was both reassuring and alarming. My personal experience reflects a much larger issue across Europe, as revealed by a 2023 survey of financial literacy levels in the EU: only about a quarter of respondents answered at least four out of five basic financial knowledge questions correctly. According to this report, only 45% of Europeans understand how compound interest works, despite this being fundamental to personal finance and long-term saving goals. 

The report reveals stark educational gaps: approximately half of Europeans correctly answered only two or three financial questions, while another quarter found the questions particularly challenging, managing to answer only one or none correctly.

Among European countries, the Netherlands, Denmark, Finland, and Estonia lead the way in terms of financial literacy, with about four in ten respondents displaying high financial knowledge (43%, 40%, 40%, and 39% respectively). Yet even in these top-performing countries, more than half the population lacks adequate financial understanding.

For adult educators, these statistics represent both a challenge and an opportunity. So, why do we struggle with financial concepts?

The Psychology of Money

The answer lies in how our brains are wired. My journey began with Morgan Housel's The Psychology of Money, which was truly mind-blowing. Housel (2020, p. 65) explains, for example, why financial concepts feel so difficult: "Linear thinking is so much more intuitive than exponential thinking. If I ask you to calculate 8+8+8+8+8+8+8+8+8 in your head, you can do it in a few seconds (it's 72). If I ask you to calculate 8×8×8×8×8×8×8×8×8, your head will explode (it's 134,217,728)." 

Our minds simply aren't built to handle the exponential nature of compound interest and long-term investing. This isn't a personal failing – it's a human limitation that affects even the most educated among us.

Consider Warren Buffett, one of the most successful investors in history. As Housel (2020, p. 64) notes, "His skill is investing, but his secret is time. That's how compounding works." Buffett started investing at the age of 10, giving compound interest decades to work its magic.

Understanding this psychological barrier was liberating, but it raised another crucial question: how do we move from understanding to action?

Discovering Your Rich Life

After diving into content from financial educators like Nischa (@nischa on YouTube) and Vivian Tu (Your Rich BFF), I reluctantly picked up Ramit Sethi's (2019) I Will Teach You to Be Rich. The title seemed too simplistic, and I felt slightly embarrassed collecting it from my local bookstore. (Thankfully, the clerk didn't care.)

Sethi's central philosophy (2019, p. 17) transformed my thinking "Spend extravagantly on the things you love and cut costs mercilessly on the things you don't." This required deep reflection on what constitutes my rich life.

For me, tracking expenses with Nischa’s Intentional Spending Tracker revealed a shocking truth about my matcha spending (nearly causing me to have a heart attack when I saw the monthly total). However, it also clarified my values: while I could cut back on fancy smartphones, cars, and constant clothing purchases, travel remained non-negotiable. My New Year's hot air balloon safari over the Serengeti, witnessing the Great Migration, was exactly the kind of experience I wanted to prioritize.

What does your rich life look like? What brings you joy? How do you want to live your life?

Once you've defined your rich life, the next challenge becomes making it financially sustainable. This is where most traditional budgeting approaches fail – but there's another way.

The Conscious Spending Plan: A Better Alternative to Budgeting

Rather than restricting yourself to a traditional budget, Sethi's approach focuses on conscious intention. According to him, traditional budgeting often fails because it focuses on restriction rather than intention (like cutting out all matcha). Sethi's Conscious Spending Plan (CSP) offers a more sustainable approach, dividing your income into four categories. Here is a short walk-through:

• Fixed Costs (50-60% of take-home pay): Your essential expenses such as rent, utilities, and insurance. Add a 15% buffer – if your costs total €2,000, budget €2,300.
• Investments (10% of take-home pay): Money for "future you" in retirement accounts. Try to increase this by 1% annually.
• Savings (5-10% of take-home pay): Emergency funds (start with three to six months' worth of expenses) and short-term goals, such as holidays, gifts or even a down-payment for a house, if you want.
• Guilt-Free Spending (20-35% of take-home pay): Money meant to be spent on the things you love – without feeling guilty.

Set up separate accounts for each category and automate transfers after payday. This removes the need for willpower – your system does the work.

Before you start investing, bear in mind that: fees are your enemy! A 1% fee over 50 years costs 39% of your returns; over 35 years, it's still a 28% loss. This is why banks and financial advisors shouldn't be the primary source of financial education – they profit from your lack of knowledge.

Now that you understand the psychology, have defined your idea of a rich life, know about the spending plan, and are aware of the fee trap, you might be wondering: where do I actually start? If you're still feeling overwhelmed, here are good news: the path forward is simpler than you think.

Getting Started: Your Action Plan

Take comfort in knowing that every financial journey begins with a single step. Follow this proven sequence Nischa offers (Payday routines):

1. Calculate essential living costs (aim for less than 60% of net income)
2. Save one month's worth of essential costs
3. Eliminate high-interest debt (anything above 7%)
4. Maximize workplace pension matching (if available)
5. Build your emergency fund (covering up to 6 months of essential costs)
6. Invest the rest

Remember, this isn't about perfection – it's about progress. Every step forward builds momentum for the next one.

You've Got This

The best time to start your financial journey was years ago. The second-best time is now.

As adult educators, we understand the transformative power of learning. Financial literacy is simply another crucial skill set – one that enables us to live our values and create the rich life we envision.

My journey from financial anxiety to confidence wasn't just about numbers – it was about overcoming limiting beliefs and taking control of my future. Statistics show that most Europeans struggle with financial literacy, so you're part of the majority, not the exception.

You've got this. You can do it. And remember: you're not alone in this journey.