The ABCs of Beginners Personal Finance – Money Education Basics
The ABCs of Beginners Personal Finance, lets take it back to the basics with a fun post today. These might put you on the right track or dust off some of that personal finance knowledge you already have.
26 quick and easy to digest headlines.
I really wish I would’ve learned these ABCs in high school and early university in comparison to some of the other things I was taught.
It’s a widespread belief that the education system should be doing a better job teaching young adults the basics of personal finance. So many of the silly mistakes I’ve made with money in my life could’ve likely been diverted had the topic been more openly discussed.
Personal finance is vast and daunting but it all really roots back into a few common threads, many of which are touched upon below. Developing a framework of knowledge and building out a system that works for your money and lifestyle.
Set up a system for your finances that is automated to increase efficiency and effectiveness. Cash comes into your main hub and is automatically dispersed to your retirement accounts, investments, savings and to cover expenses or debt. Taking yourself out of always manually managing the money system can help stop any leaks from occurring. Check out the post from I Will Teach You To Be Rich on Automating Your Personal Finances.
Understand exactly where the money you have coming in is being spent or allocated. A tool like Personal Capital or Mint will help you better breakdown your monthly expenses into various categories. This will give you insight into areas you might be overspending in and identify new opportunities for saving. A dollar saved, is a dollar invested.
Let the wonders of compounding interest work it’s magic for you. Get your money into the market, keep contributing and have patience as it builds for you. As stated by Mr. Albert Einstein himself:
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” – Albert Einstein
The dreaded D word of personal finance. There are different levels of debt and the interest rate you’re paying on that debt will really dictate how dreadful it is. If it’s credit card debt, get that to $0 ASAP. If it’s student loan debt, analyze your situation and come up with a plan that fits your lifestyle and financial situation. The broad comparison of good debt vs. bad debt has been written about many times, like here at The Balance.
Don’t let an unforeseen expense or loss of income cripple you and catch you unprepared. Build an emergency fund that you’re comfortable with to cover 3-6 months of living expenses (the month range really depends on your age, career, family situation, level of debt, etc.). Having this emergency fund will give you piece of mind to push towards your other financial goals. Here is a great post on emergency funds by JD Roth at Get Rich Slowly.
You don’t need to live like in squalor eating white rice with ketchup. But if you’re serious about becoming financially independent, getting out of debt or saving for a specific purchase, cutting back expenses and being more mindful of your buying habits will only help. You can read my post 13 Easy Ways To Save Money On Groceries and here’s also a post from The Simple Dollar on Daily Habits of Frugal People.
You need to know where you’re trying to get with your finances. Whether the purpose is retirement, saving for a down payment or paying off debt. Setting short term and long term goals will keep you on track, let you celebrate small wins along the way and have your eyes on the big target. Use the classic SMART acronym for your goals. Specific, Measurable, Achievable, Realistic & Timely. You can read this quick article from MIT on SMART goals and my post Achieve Your Financial Goals – Finding The How For Your Money.
Build good personal finance habits to create consistent momentum and continue down the path towards your goals. Automate your investments and saving, learn to say “no”, review your budgets, etc. Create a routine and stick to those finance habits. Maximize your best habits and improve habits that are holding back your personal finances. See my post Building Good Money Habits – Make Your Own Money Momentum.
The amazing investment tool that provides you broad market exposure, lower expense ratios and has outperformed actively managed mutual funds historically. Check this post on Investing in Index Funds for Beginners by The Balance. The man below for letter “J” is one of the biggest, most influential advocates for index funds.
The talented author of The Simple Path to Wealth: Your Road To Financial Independence And A Rich, Free Life. The book is one of the most respected and recommended books on personal finance. JL Collins also has a great blog where he shares further advice, stories and anecdotes. His Stock Series collection of posts are must read material and recognized as some of the best personal finance material available.
There is an endless amount of highly respected books, podcasts, blogs, forums, social media, courses, and coaches on personal finance. Accruing knowledge on budgeting, getting out of debt, investing and retirement has never been more readily available. Check out my post 75 Podcasts To Help Improve Your Life, Finances, Business, Health & More for some of my recommended Personal Finance and Business podcasts.
Don’t forget to live and enjoy life! We need to understand our finances, manage our spending and plan for retirement as optimally as possible. But don’t sacrifice your happiness, relationships and life to do so. Live a rich life by finding out what makes you happy and cut back on the areas that don’t.
Your mortgage(s) will likely be the biggest expenditure(s) you ever make in life. Educate yourself on every aspect of your mortgage and optimize your finances beforehand to ensure you’re setting yourself up for success. Forbes wrote an article on Mortgage 101: Breaking Down The Basics.
Track your net worth (total assets minus total liabilities) to ensure you’re on pace with your personal finance goals. Personal Capital is a great resource to do this. Eliminate your debts, push your income stream(s), optimize your spending and see this net worth grow and grow.
What’s the opportunity cost of ringing up credit card debt? What’s the opportunity cost of putting off starting your side hustle until next month? Or the opportunity cost of not maxing out your retirement account each yet? Think about the financial decisions you’re making in the bigger picture and run the numbers. Here is a great post on opportunity cost as it relates to your personal finances from Wise Bread.
These are your finances (or your families), take control and do what is best for you. Educate yourself, understand your own needs, build your goals and put in the work to make them a reality. Personal finance is under your control and should be working towards your personal money goals.
There are big, life changing decisions to be made with your personal finances. Ask questions, seek out advice, connect with like minded people, read, learn and listen to ensure you’re making the best decision for you. From our friend Albert Einstein again:
“Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning.” – Albert Einstein
What return on investment are you getting? Whether it’s the return on your retirement portfolio, the return on the money you’re spending on your business or return on happiness you’re getting in life, measure and analyze your ROI. Find out what is working best for you and then optimize that ROI in both life and business.
Earn some extra income on the side to achieve your financial goals faster. Perhaps it’s freelancing your skills and expertise on evenings and weekends. You could also use some of your free time to dog sit or dog walk with Rover (such a fun way to earn extra money). If you have a car, you could spend 2 hours after work every day driving with Uber to an extra $500 – $1,000 per month. Check my post 35 Rewarding Side Hustles (Almost) Anyone Can Do To Earn More Money.
Understand the tax implications of your different accounts and also current financial situation so you can make the best decision each year. From deciding between your 401k vs. Roth 401 or RRSP vs. TFSA to tax loss harvesting and capital gains or your annual tax bracket, know the tax specifics on each element of your portfolio. For some tax basics on these different accounts, Amercians can check out this article by Debt.org and Canadians can read this by the CBC.
Understanding where you are with your finances, where you want to be and how you’re going to get there is key. Understanding your strengths and understanding your weaknesses will put you in the best position to create success. Here is a post from Bigger Pockets on the importance of understanding money.
The popular provider of ETFs and one of the world’s largest investment management companies founded by John C. Bogle in 1976. Bogle is credited with creating the first index fund available to individual investors. Vanguard currently manages over $4.5 trillion (yes trillion) in assets. If you’ve read any personal finance blog or book and listened to any personal finance podcasts, you will know just how recommended their funds are.
The often quoted 4% withdrawal rate is a rule of thumb used to determine the amount of funds to withdraw from a retirees portfolio each year during retirement. It’s a general guideline for a 30-year retirement and various factors play a role in the specifics. The Mad Fientist breaks down the safe withdrawal rate as amazing as ever with his post on the topic.
I cheated a bit here but “X” is tough. Be excited! Getting your personal finances under control and working towards your goals is exciting. It’s an empowering and exciting feeling as you see the debt balances go down and your investments go up. Celebrate your financial wins along the way to keep it XCITING.
Everything is under your control. Your spending, your saving, your wants – it’s all yours. With the right mindset and effort, you can achieve your goals. There are an endless amount of resources for advice on personal finances, but the most important part of the equation is you. You need to understand what your goals are and where you want to go in your financial life.
The only option for your credit card balance at the end of every month! ZERO. Don’t let the credit card companies win by having to pay interest on your outstanding sum. It’s essentially the worst debt to have in your personal finance. It will be an anchor on your money goals, slowing you down towards financial independence or whatever goal you’re working towards. ZERO BALANCE!
There it is, the ABCs of beginners personal finance.
I could’ve included a dozen different headlines for some letters. Others were difficult to find even one (**cough** xciting).
The most important thing for me was realizing just how vast the scope of personal finances really is. However, it’s all connected and mostly rooted back in educating ourselves, making good decisions and being consistent.
What letters are you doing a great job with already?
What letters do you need to improve on?
Which words would you replace for some of these letters?
Let me know in the comments below!
Here are some other posts to help you take control of your money and life:
- The Personal Finance Resources And Content That Saved My Life
- Understanding Your Credit Score And How To Check It For Free
- 6 Tips To Help Create Accountability With Your Personal Finances
- 55 Great Online Udemy Courses For Millennials, Entrepreneurs And Side Hustlers
- Personal Finance Tools, Services & Apps Recommendations
- 30 Small Wins Challenge – Make Momentum With Your Money And Life
Don’t forget to download the FREE Personal Finance Resource Starter Kit below.