When I was young, I had no idea how much money mattered to me. In fact, it's only been in the last few years that I've realized just how much money matters—and how little I knew about it growing up. Now that I'm in my early 30s, and hopefully wiser (probably not), here are some of the biggest personal finance lessons that changed my life:
Budget Doesn't Restrict, It Empowers
I always thought of budgeting as something for the poor and the broke & it would affect my freedom to do what I want. I figured that if I was making money, why would I need to create a budget? My problem was that I spent too much money on frivolous things and didn't realize it until it was too late.
Creating a budget can be extremely helpful. It ensures that you stay within your means and make sure that any extra money is saved or invested instead of going toward something unnecessary. The first step in creating a budget is to make a list of all of your expenses, including rent/mortgage payments, utilities (electricity, gas, water), groceries, and other food costs. Then add up how much money you make each month (this should include any side hustle income).
Find out what percentage these different expenses are taking up in relation to each other by dividing them into categories. This will give you an idea of where most of your income goes so there's no mystery about where it could be cut down if necessary!
Go Debt Free Before Financially Free
I was the kid who always got an A+ in math, but when it came to paying off debt and managing money, I was an F student. Lol, jk.. I was an F student in math as well. 😂😂 For me, figuring out how best to pay down my debts was like solving a Rubik's cube: It took me months of trial and error before I was able to find an approach that worked for me. But once I did figure it out, my life changed in ways that were hard even for me at first (a numbers nerd) to believe.
Are you feeling confused about how to pay off your debt? What amount of interest you should be paying each month on your credit card? Should you pay invest first and then repay debt or vice versa? Don't worry, you're not alone!
First of all, you need to see if interest rate on your debt is high, for example: 6% or above, then you should pay your debt first and then invest later. Me and my wife bought a house and took a massive loan. My mission is to repay the load by the end of next year to avoid getting burned with so much interest. When it comes to credit cards, anything above 1% monthly interest on credit card payments is a ridiculous imo. Generally it can go as high as 25% including hidden fees, charges and taxes so be cautious while using credit cards and never miss a payment.
Emergency Fund Will Turn Crisis Into Inconvinience
I used to be a seriel spender, but when I started my career as a freelancer, I made it my mission to put away 20 percent of my income in the bank. It was hard at first, I had to cut back on travel and eating out, but the discipline paid off. In a few years, I saved enough money to survive for 6 months in case of emergencies.
So what do you do with your emergency fund? Use it only for emergencies, duh! Don't touch it for anything else. But if you find yourself putting off some big purchases because you don't have enough cash flow for savings and expenses, put half of any extra money into your emergency fund until it's full. Then use the other half to buy yourself something nice!
Don't Forget To Reward Yourself
I think it's important to reward yourself for staying on track with your money. You went out and worked hard, so you deserve a treat!
What kind of rewards are you going to give yourself? What will be your biggest reward? Will it be a weekend getaway or a night at the movies? Maybe it's buying that new pair of shoes or taking home dinner from your favorite restaurant. Think about what will make you happy and then go for it!
How often are you going to reward yourself? One time per paycheck? Once every two weeks? Make sure that whatever schedule works for you won't cause problems down the road—you don't want to spend all of your earnings before the next payday!
Lack Of Money Is Lack Of Financial Literacy
Here’s the thing: if you don’t know where your money is going, how can you expect to make a change in your financial state? By educating yourself about personal finance, you will be able to pinpoint areas where your money could be used more efficiently and effectively. You can easily plan for the future and make informed decisions if you continuously educate yourself with current trends and technology. Lack of money is more about lack financial literacy than lack of income.
Conclusion
I hope that by sharing my own personal finance lessons, I can help you avoid some of the pitfalls and make smarter financial decisions in your life, especially if you are young. I realised the importance of financial literacy much later in my life but you don't have to.
If you’re looking for more tips on how to improve your finances, please follow. I’ve also got plenty of other cool articles on topics ranging like 'how to make money online', investing, personal finance, crypto and DeFi.