9 Personal Finance Rules School Doesn’t Teach Us
What did we learn about personal finance in college? Credit investing, money management? Or did we only take the courses that were mandatory for us to graduate?
Well, I did just that. And, I also have a Masters in Business Administration (MBA) where we SHOULD have learned about some of these topics. Well, for most people, these classes were more or less pointless, just like calculus, astronomy and anthropology (before you yell at me, note that I said, MOST people).
The longer I’ve been out of school and college, the more disappointed I am about how much information was not included throughout my studies. The world tells us to go get educated, get a job, and all will be well, but unfortunately it’s not that simple. I have read many books and watched many experts who will say that for us to succeed in the world, we need to know a lot more about money than what school will ever give us. Personal finance forms the backbone for all success stories.
Therefore, after some research, I’d like to present to you 9 most important rules that everyone should abide by. This story acts like a personal rulebook for me as well where I learn and grow with you.
You have probably heard that you to save at least 10% of your income. But let’s be honest here, this isn’t enough to retire on. Well, unless you’re earning millions. For most of us with a regular paycheck, a decent savings percentage will be about 20% and if you are able to save and invest about 40%, you are on the right track.
I am not saying that 10% is entirely useless. It could be a great starting point to build that financial discipline. In order to save more, reduce your expenses and unnecessary costs. Instead of buying that cup of coffee every morning, put that money in a savings account with a better interest rate.
#8. Emergency fund
If you have ever read my previous articles, you may have heard of what an emergency fund is. I was reading that 40% of Americans don’t have the funds to cover an emergency of $400. This is an alarming statistic that only shows how people disregard the importance of an emergency fund. What if you lost your job today? Would you have enough money to cover your costs? The Golden rule is to have six months of expenses saved up somewhere. However, the more the better.
#7. Budgeting basics
Budgeting is quite important in life, yet we don’t hear anything about it in school. Sadly not understanding the basics of budgeting while in school can leave us disadvantaged right after graduating. Especially once we move out not having knowledge of how to manage bills and create the distinction between wants and needs can lead to one enduring hardship after the other.
Everyone needs to know how to plan a lifestyle that is financed by earned income. This includes understanding how to plan for all bills, but still ensuring there’s enough left for necessities such as groceries and savings. And let’s face it, as much as budgeting is important, no one really likes tracking every single penny they use.
What you could do instead is what people refer to as tactical budgeting. This involves creating budgets and plans over a long period of time. For example, you can identify what you need every month and create a budget with the needs once and respective costs over the next six months. From the plan created, you can then separate the amounts into different accounts to ensure you don’t spend over your budget. Then occasionally you can refer to your list to stay on track.
Read also: How to survive any economy
#6. Compound interest
The power of compound interest is possibly the best kept secret. The one thing every person in their 20s has an advantage over everyone else is time. While they may not achieve their financial goals instantly, they have an upper hand when it comes to investing. All they need to do is tap into the powers of compound interest. By setting aside small chunks of money in a high interest account, we can amass great wealth that will compound over and over again through the years. Warren Buffet made most of his money because he has been doing it for a long time and the factor of time always remained on his side.
I don’t know about you but my parents always berated me for getting a credit card. And, to some extent, they were right because once I started earning, I couldn’t manage my finances properly and ended up maxing out my credit card. Then, I had to borrow some money from a few of my friends and on the remaining, pay huge chunk of interest and late payment to the bank which adversely affected my credit score.
I learned from this mistake. However, I have realized that most people don’t know the importance of credit scores and maintaining a great credit history. They would probably be aware of this if schools paid more attention to training them on this life skill.
#Here’s what to know:
Credit score is one of the most important parts of our financial health, and it generally determines your financial position as an adult. With the proper score, it’s a lot easier to purchase a house, get a car, it a business loan, and makes it much easier to achieve other milestones in the future. We can no longer ignore the importance of credit. Everyone needs to know how to build credit and have a proper score all the time.
However, always pay your debt in time. There’s no other way around this. If money is due today, make sure you pay it today.
If there’s anyone who’s depending on you financially, then you need to get life insurance. This could be your child, spouse, or parent. However, if no one depends on you financially end the policy to save on money. In addition to life insurance get insurance for other aspects and assets you own. This includes your car, home, expense assets and health. You can also get umbrella insurance which covers different policies and guarantees a discount if obtained from one insurer. Take your time to get different rates and the features available before choosing a company to insure with.
Read also: 6 business tips for a $6 Billion- Dollar man
Taxes are such a broad topic that it is hardly ever discussed in school. It’s important to understand how they work if you want to be on the right side of the law. Before you get your first paycheck or make any sales from your business, learn how to calculate the tax rate and find out how much money you’ll be left with. This will help you determine whether a job offer will meet your financial needs and what the appropriate pricing strategy for your products or services will be.
Luckily, there are plenty of online calculators that will do the work for you. They will show you the gross pay, the amount payable in tax and the amount left in your account, also known as the “take home pay”.
Make a habit of preparing your tax returns yourself. There’s a lot of misinformation and bad advice out there. Be careful.
#2. Guard your health
A hospital visit for an injury like a fractured knee can a lot of money without insurance. If you’re finding it hard to meet your monthly premiums, then what would happen if you end up in the emergency room? You may end up having to borrow money to pay for your medical bills, burdening other people who had plans with their money. Doesn’t sound fair, right? If you don’t have a medical cover, get one ASAP.
If you are new to workout, read my article on 10 things that people don’t tell you about weight loss | My experience after losing 40 kgs (87 lbs).
Also, taking care of your health can end up saving you a lot of money. This involves eating the right foods, maintaining a healthy weight, regularly exercising, not consuming alcohol and other addictive’s excessively. You don’t want to be sorry tomorrow, so guard your health today.
Also read my article to get a science based explanation on Light vs heavy weight training to get a better understanding.
#1. College debt isn’t 100% necessary
Contrary to what everyone believes that student loans go hand in hand with a college degree, you actually don’t need to get one to achieve the latter. 85% of new graduates complain of the heavy school debts and the chunk of money that goes to paying it off immediately after they start working. It’s not always a must that you get these loans to pursue your degree. Some institutions help students so they don’t end up in debt with either aid or a % of fee as a scholarship. Other schools offer great education at a fraction of the private schools’ tuition fee.
You could also attend school part time, work as you study, enroll in a more affordable school, graduate fast or begin your journey in a community college.
I am not saying that debt free schooling should be everyone’s goal. In some cases, it might be worth it. If you were set to launch in a very high paying career path, then a few $1000 shouldn’t get in the way. However, don’t establish this debt as the main factor of existing as a college student. There are so many other ways of achieving your career goals.
CONTRIBUTED BY Tushar Murty
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