Finance 101 in 5 Minutes.

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Finance 101 in 5 Minutes

If you don’t want to be broke, read this.

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You’ve done it before.

Get your paycheck, spend it.

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Get your paycheck, spend it.

You’re left with no money and no idea on what to do next, except go to work again for the next paycheck.

It’s a hopeless cycle and I too was a victim.

But then it all changed when I learned how to fix my finances.

Personal Finance is crucial for everyone. In many ways, it displays your discipline and your ability to provide for your family.

And in today’s society consumerism is rife and financial discipline is not.

Personal Finance is not a subject that’s taught in the modern education system.

This is on purpose.

Imagine if you knew how to save, budget, invest and grow your money and become a wealthy individual? You would break away from societies standards of being an excessive consumer.

If you feel like you are in this vicious cycle of consumption and you dont know how to get a grip on your finances.

I am here to fix that.

Here are the 5 things you need to know.

  1. Income

This is the money that you bring in. The more, the better.

Sources of Income:

Your 9–5
Dividends
Rental Payments
Crypto Staking
Flipping Products
Online Income (such as Affiliate Marketing or Email Marketing or even writing here on Medium!)
P.S. Online Income is an insane opportunity to gain another income source.

These are some of the income opportunities. There are hundreds more.

Rules of Income

You need to have more than 1 income source (this is ideal as you may lose a source).
We have seen the effects of the COVID-19 pandemic leading to millions of jobs being lost. You dont want to be in this situation.

Your income should exceed your expenses.
If your expenses outweigh your income, this is financial suicide. You will always struggle if this is the case.

Your income should have a % invested.
This could be 10%, 20%. Some may go as far as 50%.

The idea is to get into the habit of investing your money and not spending it all.

What to invest in?

Keep reading.

  1. Expenses

Control this.

It’s the reason we get into financial trouble in the first place.

Know what you need and what you want.

Needs

Bills (Gas/Electricity)
Rent/Mortgage
Travel
Groceries
Debt Payments if you have any
Emergencies that may arise (gas leak for example)
Your Wants (not essential)

Entertainment
Luxury goods
Restaurant outings
Designer clothes
This isn’t an exhaustive list, you may have more needs, and there are infinitely more wants.

I’m not saying that you can’t enjoy yourself, but you know when you overindulge.

Rules of Expenses

Don’t buy what you cant afford (don’t borrow money on credit if you can’t afford to pay it in full)
Too many people assume that because there is ‘monthly payments’ this permits you to buy it.

You cannot have more expenses than you do income
Living above your means is a one-way ticket to financial ruin.

Don’t do extremes.
Don’t go excessive with spending, but also don’t deprive yourself of any of the enjoyable things you love.

Taking control is what’s important.

  1. Saving/Budgeting

This relates to keeping a % of your income and allocating expenses.

Reasons for Saving/Budgeting

Emergencies can arise randomly (health issues, car issues)
It provides you with discipline and is generally good practice
You understand the allocation of your money and where it’s going
The general rule of thumb is to cover 6 months of expenses.

Hypothetical Scenario:

You spend $2500 a month.

$2500 x 6 = $15,000

Now, I know what you’re thinking.

“How am I supposed to save 6 months of expenses?”

Start with 1. Build your way up to 3

$2500 x 3 = $7,500

This ensures that you aren’t living paycheck to paycheck.

Your savings should be put into an account that is easily accessible such as a high-interest bank account.

Factors that affect your Saving/Budgeting

Your income
Your cost of living
Personal requirement
Your existing savings
Rules of Saving/Budgeting

Build a 6-month emergency fund
Keep your savings in an easily accessible account, not an investment account that taxes you for withdrawals
Track your savings/budget in an Excel Spreadsheet (there are many free ones online)

  1. Investing

The fun part.

Using your money to make you more money.

Most people on this planet (I would estimate >75%) don’t even realise that their money can be used to become wealthy.

Before Investing

Have an emergency fund in place
You don’t want to use your saved money in an investment account. If there is an emergency it will be hard to withdraw

You research the investments you want to put your money in
Identify your period (are you willing to wait for 10 years, 20 years?)
Have a strategy (if you are younger, you can take more risks)
List Of Investments

Yourself (invest in books, courses, your own online business, your health)
If you improve your skillset, you can make more money.

Then you can invest more.

Stocks (can be individual stocks like Apple, or can be an ETF)
An ETF or an Index Fund is a pool of stocks into one financial instrument. The most common one is the Vanguard S&P 500.

This includes the 500 largest companies on the Stock Exchange such as Apple and Amazon.

For beginning investors, this would be the safest option as it allows you to invest in multiple companies, which allows for diversification (spread of risk).

The great thing about investing in the stock market is that you can now do it commission-free with fractional shares.

This means you can invest $10 into the S&P 500 if you wanted to and work your way up from there.

Crypto (Bitcoin, Ethereum)
Real Estate (Rental properties, single units, family units, apartments)
Commodities (Gold/Silver)
Other currencies
Startups (others’ businesses)
Rules of Investment

DYOR (Do your research)
Invest what you can afford
Diversify your investment
Play the long game by taking advantage of compounding
Did you know:

Warren Buffets wealth was mostly gained after he turned 60. The billions of dollars that he has is due to the effect of compounding.

Compound Interest Calculator

Determine how much your money can grow using the power of compound interest.

Play around with this calculator and you will see how amazing investing is.

  1. Protection

The last bit of this brief overview is protection.

You’ve worked hard.

Saved.

Budgeted.

Invested.

Built yourself up from scratch.

Now you want to keep what you have built, don’t you?

Examples of Protection

Life Insurance
A Will
Real Estate Inheritance
Income Protection
Medical Insurance
You want to ensure that your family is protected with the assets that you own.

Conclusion

Now you understand the main factors affecting your finances.

You need to apply them.

Spend a weekend figuring out your bills and expenses, put this in an Excel worksheet and start working.

At the end of the month when you get your paycheck, save a bit of it.

Work towards that emergency fund.

Start building your investment portfolio.

Stay consistent.

Reach Financial Freedom and never work again.

CONTRIBUTED BY Long Term Wealth.

Read More: 6 Golden Rules of Becoming a Millionaire

Read More: Develop These 5 Habits To Fix 90% Of Your Money Problem

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