One day I was thinking about the education system and I realized that our school system prepare us only for the working world. This system teaches us just about how to get a good job. It teach us nothing about how to organize our finances. How to save and invest our money wisely.
Think about it, how many times have you discussed the matter “money” in the classroom, and what have you learned about money in school? I think I never talked about money and I never learned anything about investing at school.
It may be the case that you have graduated in economics or accounting, but I am sure that nobody at school or college has ever taught you how to control your personal finances and how you can make your money work for you instead of working for money.
One thing I want to make clear is that I am not against the school system, according to me education is very important if you want to become successful in your life. But school can just prepare you to get a good job. In school, you study all the materials needed to become a professional, but it does not teach you what to do with your money once you find a good job.
So many professional workers who got good grades and earn well enough, often find themselves in financial difficulties, precisely because they do not know how to organize the flow of their income and how much they should spend and invest?
In this article I have listed some of these ideas that I want to share with you -
1. Pay Your Self First
According to the Best-selling personal finance book “The Richest Man in Babylon”, A part of all you earn is yours to keep. It means whenever you get your pay check, you should put aside at least 10% immediately and spend the rest for your monthly expenses. No matter how much or how less you earn, anyone can live with 90% of their monthly income. Every month you pay everyone else for your home , car, phone and other household expenses, when will you start paying yourself?
2. Save Enough
A very rich and famous person once said, “If you cannot save money, the seeds of greatness are not in you.” The more you save, the more you can invest. So if your finances allow you to save up to 10%, do it immediately. If you are not able to save 10%, then you can use the magic formula of Brian Tracy. Start saving 1% and every month increases the saving 1%. In this way in 10 months you will be able to save 10%.
3. Choose a career that pays well
It is a very important choice. If you want to work for others, at least choose a career that pays well. Finish your university. Get a professional degree unless you want to want to start your own business.
Debt can be your biggest enemy on the way to financial freedom. So try to save more money or find new ways to increase your income to get out of debt as soon as possible. Remember, not all debts are bad. Some debts are bad and some are good. You need to pay off your bad debts where you are paying high interest rate.
5. Always buy used car
The car is a commodity so it is better buy a used one. The main reason for this is that the new car start depreciating its value as soon as it comes out of the dealership. So it is better to buy a car that is 2-3 years old and then keep it for at least 5 years.
6. Always buy on sales
Before you go to shopping, you should always make a list of the things you want to buy and then stick with that list. Every now and then you should check prices in other supermarkets or check online websites to find deals. The products that are of daily use, you should buy in large quantities when they are on sale (of course, you should check their expiry date ).
7. Buy a Term Insurance
If you have a family who depend on you, then you should buy a simple term insurance. In term insurance, you do not get any money back at the end of the policy unless something bad happens with you. But in this type of insurance, the costs are much less than traditional life insurance policies. If you have term insurance, you can sleep well at night knowing that your family is safe, in case something bad happens to you. In addition to that, you can invest the difference in other good investments.
Most of the people buy life insurance for the investment purpose. The life insurances are not appropriate ways to invest your hard earned money. Most of the insurance companies are worthless. If you do the calculations at the end of the insurance contract taking the inflation in consideration, you will find out that you have not gained anything. In most cases, life insurance will give you return that are less than the rate of inflation and you will find out that you have actually lost your money.
9. Invest regularly
If you’ve learned how to save money and you have decided to invest your money, then you should show some consistency in investing. Only by investing regularly, you can enjoy the magic of compound interest. Many people start investing their money but after 5-6 months they quit because they can not see any gains in their portfolios. You should not become one of them, you should not quit until you win. You should do your research before investing your money to find out the best investments and then invest regularly at least for 3-4 years to see the real magic of compound interest.
10. Stay away from mutual fund investments
Most people do not know how to read the financial statements and balance sheets of the companies so they trust the professionals of mutual funds to find good investments for them. But 90% of the mutual funds are not able to beat the market return. So you shoul not give you hard-earned money to someone who can not give you above market returns. I repeat again, as I have always said, you need to take actions, do it yourself, no one else can take care of your money like you can. Never invest in mutual funds because in the end you will gain nothing. You will pay a lot of money for fees and taxes.
11. Build the emergency fund
Before you start investing your money, you need to create a fund for future emergencies. This fund must be easily accessible. Some people ask me how big this fund should be – my answer is that this fund may vary from family to family. In my opinion this fund must be able to cover all the expenses of your family for at least 6 months.
In the future posts, I will talk about these points in detail. So Good Luck till then!
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After finishing her study in computer science in 2005, she chooses to work in the economic - financial sector (as an accountant) to take a closer look on economic reality. Now she works as a full time blogger, writer and editor on the subject of personal finance.
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