What you should know about personal finances? — Realistic steps to personal finance management
Tags: Money Mindset, Money Management, Money, Personal Finance, Financial Planning

Opportunity is missed by most people because it is dressed in overalls and looks like work. — Thomas Edison

Photo by Devin Avery on Unsplash

I recently watched a video where a personal finance specialist said that you shouldn’t worry about spending 3 dollars a day on a take-away coffee. This person said it doesn’t even add up that much.

I know my math is bad, but even I can make the simple calculation and tell you that indeed it adds up, and it adds up enormously. And yes, you should worry about it.

3 dollars a day x 30 day per month = 90 dollars per month

INSTEAD

90 dollars per month

Deposited into an investment account

average yield rate at 10%

for a period of 30 years

MEANS

You would have over 200 000 dollars!

If this is not adding up, then I don’t know what is.

This is a great example of why you should learn to manage your personal finances.

Personal finance management starts with the simplest steps. Simplest steps such as knowing how much money you spend every month on a takeaway coffee and making the calculations how much money you would earn, if you were to invest the money you spend on a coffee.

So, what you should know about personal finances? Let’s talk about my 3 steps that I believe are the core of personal finance management, and the reason why.

But before we get into it, I just want to say this.

Regardless of your current financial situation or how much you earn, it does not determine your ability to manage your personal finances and learn how to manage your personal finances.

1. CHANGE YOUR MINDSET

You may think what the actual fuck. Change my freaking mindset, how do you think this is going to help me manage my personal finances?

Well, good question. Let me explain.

Unfortunately, most people don’t have a lot of knowledge about personal finance management and money in general, as regrettably it is not taught in school. Or perhaps your parents were not big on personal finance talks, perhaps you didn’t know anybody who was a good example with personal money management, and maybe you have had some bad experiences with money.

Therefore, when I say change your mindset, I mean that you have to start shifting your mind to the right track, that being personal money management. In order to do that, you have to get familiar with the topic. The best way to do that is to read to books, articles. Listen to videos and podcast. Basically, educate yourself, and be your own teacher.

When you understand the basics of money management, then it will be much easier for you to actually take the necessary steps. If you don’t understand and relate to the core principles of money, then none of this makes sense to you.

I understand money can be an uncomfortable topic, especially your own money. But we are all so curious what is happening in other people pockets, aren’t we? We are all nosey little fuckers when it comes it other people’s money.

While this is completely acceptable, then I suggest you put the same amount of curiosity into your own finances. And start digging through. Get comfortable with your money, and don’t be scared. You need to get comfortable with money and learn everything about it.

This leads me well into my next point which is getting even deeper into your own pockets.

2. TRACK YOUR SPENDINGS

I have talked about this over and over again. But I still can’t get over it. Because IT IS SO IMPORTANT.

There is no way around it. Start tracking your expenses, for example 3 months and see where your money is going. Find areas you are able to cut back on, and make the cut.

I get it, not everybody drink coffee, so this 3 dollars, I talked about in the beginning, varies from person to person. Perhaps for some is bottled water, sweets and so on. Perhaps for you it is absolutely fine to spend 3 dollars a day on a coffee, because your finances are in order and you know exactly how much you can spend.

This is just to explain that the most common everyday habits, that don’t even add up that much, can have a huge impact on your financial status. And the only way you find out what are the unnecessary expenses for you, is when you track your expenses.

This is why it is so important to learn to manage your personal finances, to learn money management and know your income and outgoings in depth. Because if you don’t, then you will be in the paycheck-to-paycheck carousel for the rest of your life. It is your choice.

I know, some people suggest to start earning more. Which is very welcomed. However, if you don’t know how to manage your personal finances, then your spending habits very often tend to increase with your income.

You can earn 100k a month but if your expenses are 100k a month as well, then you are still living paycheck to paycheck and have absolutely no financially security. You wouldn’t even be able to buy a new washing machine if yours breaks down, and you earn 100k a month. What a joke that would be.

If you earn 1000 dollars a month and you save 50 dollars every month, then you are in a well better situation than the person earning 100k.

So, start tracking. There are many different options to do that, use an application in your phone, do in excel or even on paper. Whatever suits you the best.

3. PUT YOU MONEY TO GROW

Once you have figured out your spending habits and you are able to save money. Then you need to find a way to put your money to grow. If you don’t do that and just save under your mattress for the next 30 years then just know that you hard earned and saved money loses approximately 3% of it value PER YEAR.

Most standard savings accounts have some sort of yield to it. They are not the best, but still better than saving under your mattress.

I would recommend investing. I know it sounds overly complicated. But it is not, there are so many different ways you can do that, without knowing much about the investment world. For example investment funds, where the fund administrators decide where to place to money for the best returns. And obviously you wouldn’t want to put all your money into one investment account, but you want to distribute to various different ones, to spread the risk. This varies drastically where you live, how much money you have to invest and how much risk you are willing to take. So definitely consult few different financial advisors and find a solution that suits you the best. Most of it is automatic so you don’t need to sit in front of your screen and stare at stock prices.

I personally am not that into buying induvial stocks, so I prefer to buy funds. It is just easier for me, less hustle and good returns.

However, look into it, do your research.