9 PERSONAL FINANCE RULES WHICH SCHOOL LITTLE OR DOESN’T TEACH
What do we learn about personal finance in school? Credit, investment, financial management or something else? In this world, always telling us the best advice is to always go get an education, graduate, then get a job then everything will be fine. There’s nothing wrong with that advice, but sadly it’s not that simple! To succeed, we need to know more about managing money ourselves than what schools have given us all along. Therefore, here are the rules:
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#Buying your first home.
You’ve probably heard the popular statement “If you want a house, you have to save up to 20% of the value of the down payment.” Otherwise, you will be forced to pay mortgage debts which can damage your bank balance. What you won’t learn in school is that higher mortgage payments can be painful, the financial trade-off between paying more down payment and paying in less installments can be beneficial. When we look at macroeconomic factors in US over the last decade, the real estate appreciation rate has really risen dramatically but the wage rate has remained stagnant. So, it is unrealistic to start saving 20% of the value of the house because the value will increase drastically over the years. So, if you have a greater capacity to save money for at least the next 5 years comfortably, then do it consistently.
Schools will teach you to save at least 10% of your income. But, let’s be honest that this is not enough for retirement. Unless you make quite a lot of money every month. For most of us on a regular salary, a decent savings percentage is around 25–40%. So save more, reduce unnecessary expenses or costs and save the money in investment instruments with a higher rate of return than inflation.
#3. Emergency fund.
You may not have heard of an emergency fund when you were in school. What if you lost your job today? Do you have money to cover living expenses? The general rule of an emergency fund is to have 6 months of your expenses each month. So, prepare these funds so that your finances are safe and maintained going forward.
#4. Budgeting basics.
Budgeting is quite important in life, but you probably never heard of this in school. Not having the knowledge of how to manage bills and make the distinction between wants and needs can cause your financial plans to go haywire. Everyone needs to know how to plan a lifestyle that is financed by the income earned. This includes understanding how to properly control all existing bills and making sure there is enough money for necessities such as daily necessities and savings. In budgeting, you need to track the money you use every day and make a budgeting plan over a long period of time. For example, you identify what you need each month and make a budget according to your needs, wants and costs for the next 6 months and from the plan you make, you can then separate that amount into different accounts to make sure you don’t overspend. which has been made.
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The power of compound interest is perhaps the best kept secret and this is one advantage that every young person has over the old is time. Although it may not achieve financial goals instantly, compound interest has an advantage when it comes to investing. All that needs to be done is to just take advantage of the power of time and its compound interest. By setting aside some money into high-return investment accounts, young people can accumulate wealth that will grow again and again every year.
#6. Secrets of credit.
Most young people after getting their first credit card, will definitely maximize their use and then end up with a life full of debt, where they are forced to pay large amounts of interest and in some cases, this results in late payments that can have a bad impact on the future. their finances. Most people don’t know is the importance of a credit score and keeping a good credit history. In schools more attention is paid to training students on life skills than about these credits. Here’s what you need to know, that your credit score is one of the most important parts of your financial health and generally determines your financial position as an adult. With a good credit score, it’s much easier to buy a house, a car, get a business loan and much easier to reach other milestones in the future. We cannot ignore the importance of this credit. Everyone needs to know how to build credit and have a good score all the time.
If there are people who depend (children, spouse or parents) on you financially, then you need to have life insurance which is better to get a term policy than a whole life policy because you can get more flexible coverage. However, if no one is depending on you financially, end the policy to save money. In addition to life insurance, have insurance for other aspects and assets that you own such as houses, cars, other expensive assets and health. Take your time to get the price and features that suit your needs before buying the insurance.
Taxes are a very broad topic that is little discussed in schools. It’s important to understand how it works if you already work or have a business. Before you get your first paycheck or make a sale from a business, learn how to calculate tax rates and then figure out how much money you have left. This will help you determine whether the offer from the job will meet your financial needs and an appropriate pricing strategy for your future product or service. Fortunately, there are now many online calculators that can do this tax calculation. They will show you the gross salary amount, the amount of tax to be paid and the net salary amount received by you.
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#9. Guard your health.
The cost of treatment at the hospital is certainly very expensive and continues to rise every year especially without insurance. If you find it difficult to meet your monthly health premiums, then what will happen if you end up in the emergency room? You may end up having to borrow money from someone else to pay for their medical bills. Maintaining health is very useful for saving and making a lot of money because you can think, do activities with a soul and physically that is always excellent. So don’t hesitate to eat healthy food, maintain regular weight, exercise regularly, don’t drink alcohol in excess, etc.
CONTRIBUTED BY Erwin Hermawan
By Practical Wisdom x E.H
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