Personal finance is, by all means, one of the most underrated aspects of one’s upbringing, it should be taught extensively, but it isn’t. In order to live a successful, happy, and fulfilling life, whether we like it or not, money is often a necessity. Whether it be to be able to live stress-free and financially independent, or whether it be to achieve your dreams, money definitely helps.
But why do so many people lack the knowledge on how to manage, invest and save their own money? Simply, society does not put enough emphasis on the importance of personal finance yet. So it’s up to us to learn for ourselves, and educate others. Here are four tips to help you with your personal finances, whether you’re experienced in the world of finance or not.
Budget. The importance of budgeting can not be overstated, it’s incredibly important to prevent pointless spending. Figure out your priorities early and set aside money for those priorities. By budgeting I don’t mean to have an extremely strict, constricting plan. I mean to set aside money appropriately, you can still spend money, but responsibly.
Invest your money. I can not stress this enough, in order to retire or become financially free, you must learn to invest your money. Saving is great and all, but it’s almost certainly a net loss due to inflation, investing wisely will allow you to increase returns considerably and at least beat inflation. If you don’t want to extensively learn about stocks or other investment vehicles, you can always invest in ETF’s (Vanguard holds many top-performing ETF’s), or mutual funds. Whatever the case may be, find your risk tolerance and invest appropriately. Note that I am not saying not to save money, it is important to preserve a portion of your income to be prepared for any unlikely contingency situation.
Do not accumulate detrimental debt. Note that I did not say to accumulate all debt, only detrimental debt. What does this mean? In essence, I am referring to credit card debt. The only time you should be taking out a loan is to invest, or purchase a home or car, or any major purchase which you can definitely afford to pay over the long term. The difference with credit card debt is that the interest rates are absolutely bonkers. That’s right, bonkers. Let’s take a look, if you spent $1,000 using a credit card at 15% interest (most actually have higher interest rates…), in five years, you would owe $2,011.36, in 10 you would owe $4,045.56, in 15, $8,137.06, and so on. And the previous calculations only compounded interest once a year, normally credit cards compound monthly, increasing the debt significantly. Those numbers are actually very conservative, and yet still frightening. Use your credit card, but pay it off immediately, build a good credit score, do not build debt for your future self.
Do not be emotional regarding your finances. Emotional decision making is, undoubtedly, the least reliable method of solving problems. If you are currently losing money on an investment, do not panic, understand your reasoning for buying into it in the first place, and then decide whether or not to continue holding the investment. Make educated decisions and stick by them until you find a legitimate reason not to.
Hopefully these tips prove to be somewhat useful to you. If you do find any of the above useful, sharing is always appreciated!
If you’re interested in starting your journey to financial independence and success, I highly recommend picking up Rich Dad Poor Dad, here’s an affiliate link to purchase it on Amazon, you would be supporting me too!
Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!