Personal finance can be an overwhelming and complex topic. My goal with my writing is to simplify things into bite-sized easy to understand posts. That’s why I’m compiling a list of personal finance topics to educate yourself on now for maximum chances to succeed in the coming years.
Why Educate Yourself in Personal Finance?
Personal finance is more than just money. It’s understanding investing, debt, taxes, and a whole plethora of other things.
It’s also understanding your own money habits–why you do what you do. Once you understand your money habits, you can get control of them so they don’t control you.
What Happens Without Financial Education?
Without financial education, your money is happening to you instead of for you. If you don’t understand how money works and your relationship with it, the months and years just kind of pass you by. If no improvement is made, you’re at risk of being no better off financially when you’re 60 than when you were 20.
Topics to Educate Yourself On
This is a great list for beginners to start with. With so much information out there, it’s overwhelming to figure out where to begin. That’s why I wanted to simplify things and create an easily digestible list that anyone can understand.
Number 1: Consumer Debt
I don’t know about you, but I used to look at consumer debt in terms of the monthly payment. If I could make the payments, I was fine–or so I thought. Even with credit card debt, I wasn’t worried if I could make the monthly payments.
The big problem with this is I was running in quicksand. If I hadn’t changed my habits and behavior, I would be in a worse position than when I was as a teenager. The way to really think about consumer debt is how much it’s costing you both in monetary terms and in opportunity cost.
You might be able to pay $1,000 per month on your credit card, but if it’s costing you $200 in interest, you’re going in the wrong direction. That’s money directly out of your pocket to whatever company loaned you the money. It’s also $200 that you can’t invest and allow to compound.
Being in the consumer debt cycle is a surefire way to stay broke for a long time. So, understand consumer debt and if you’re in it, make a plan to get out of it.
Related: Debt Posts
Number 2: Automation
If there are cookies or some other kind of unhealthy snack in the house, I’m probably going to eat them. My solution is simply not to buy a bunch of cookies I’m going to want to eat. If they’re not in the house, I’m not going to make a trip to the store at 8:00 at night to get them.
Most people don’t have a lot of willpower, and I include myself in that category. That’s why automation is such a key in personal finance. It’s hard to sustain month after month transferring X amount of money to a savings or investment account. But if you automate it, you only have to set it up once and periodically maintain it.
Much like with the cookies, it cuts down on willpower and having to remember. For example, if you want $500 added to your emergency account every month until you reach six months of reserves, you just set up an automation once. The money is taken from either your check or banking institution and transferred to the online account holding your emergency fund.
No having to remember, adding too much or too little. Do the work once and you’re set other than periodic adjustments.
Related: How to Automate Your Money
Number 3: Saving Money
Saving money is a skill. To enhance that skill, understand why you’re saving and how you’re going to execute it. It’s important to understand that saving is not just delayed spending.
Here’s what I mean by that. When I was a kid I would save my money with the goal of buying something I wanted like a new toy or some type of sports equipment. I’d do a great job of saving my money then I’d go and spend it on what I wanted to buy.
Which was a good way to do it because I wasn’t getting into consumer debt (as a child) and I got what I wanted. However, as an adult, you have to take saving to another level. You have to develop the skill of saving to create some financial runway, and keep it rather than spending.
You can save your money to buy things, but you have to put some money into savings and keep it as well.
Number 4: Investing
Robert Kiyosaki says the rich don’t work for money. They are investors and have their money work for them. Most people have probably heard the term “have your money work for you”, but not everyone understands it completely or puts it into action.
I was guilty of this for a long time. Of course I had heard the expression, but I still didn’t invest. I had all these preconceived notions of what investing was, and what kind of people were investors. Looking back, I was wrong and paid the price by missing out on a lot of opportunities than if I had started earlier.
What I know now is that investing truly does allow your money to work for you. And it’s actually possible at some point to have your investments exceed your income. For example, most people would consider a six figure salary a good income.
For sake of even numbers and simplicity, a million dollars invested into an index fund generating an average return of 10 percent per year will equal $100,000 that first year. $100,000 is six figures, which as stated earlier, is a number most people would consider to be a good income.
So just by investing the money, a very large sum can be generated. Even better, if the money is allowed to compound, it will grow exponentially over the years, creating real and sustainable wealth.
Number 5: Inflation
Inflation is often called the hidden tax. It sneaks up on you and you don’t see it coming. It really adds up over the years though. It would be easiest to use an example to illustrate the power of inflation.
20 years ago, Jimmy graduated from college. He started off making $45,000 per year, owned the car he drove in college, and paid $950 in monthly rent. Fast forward to the present day and Jimmy is now making double what he made twenty years ago.
His rent has also doubled, and he recently bought a used car for $30,000. His grocery bill is more than double what it was 20 years ago, as are his entertainment and other costs. Even though he is making twice as much as he did 20 years ago, his lifestyle and ability to purchase goods and services has not improved.
Number 6: Taxes
Most people see taxes as a fact of life and something they just need to pay. Most jobs have it automatically deducted from their paychecks and the majority of people don’t think twice about them. While in reality, taxes are one of our top expenses.
Get a working knowledge of how taxes work and then hire a good CPA to help you reduce taxes. There are a lot of great strategies that will help you reduce taxes, allowing you to build wealth faster.
And to clarify, make sure your tax reduction strategies are done legally and ethically. Doing things the wrong way comes with big consequences, and I would never recommend anyone go down that path.
Number 7: Your Own Mind
The last of the personal finance topics to educate yourself on is your own mind. We often are the first person to get in our own way, and stay in our own way. I’m a classic example of this.
As I write about in the first chapter of my book Cash Uncomplicated, I got in my own way for years and years. I made excuse after excuse as to why I couldn’t get ahead with my money, buy a house, or build any kind of assets. I would use any and all excuses.
It wasn’t until I began to educate myself that things began to change for the better. Once I made this decision and took the right actions, I was off to the races.
Conclusion
Even if you’re a beginner, educating yourself on these seven personal finance topics will greatly help you in your money journey. You don’t have to be an expert or even like personal finance, to take significant steps forward in your progress.
Just having basic knowledge of things like debt, investing, and automating will put you leap years ahead of where you were even a short time ago. So don’t think you have to go to the extreme, or become an expert. Start educating yourself on these basic items and watch as you make exponential progress.
What other topics are important to educate yourself on around money?
