To start the series on Personal finance 101 I want to give you an introduction to the futures topics we’ll be covering. First of all, I want you to know that personal finance and money management does not have to complicated. In fact, I bet that if you follow along with the future blog posts you will get a head start in the game of money.
Your financial situation is determined by some basic things. Your income, of course, plays a big role. Your expenses do as well. What you do with the difference (a.k.a. savings) also matters a lot.
Income comes in many forms. For the majority of us, our income comes from a day job. Some people are managing 2 jobs or more and maybe doing a lot of side hustling as e.g. freelancers using the skills they have learned at their day job or their spare time.
Expenses also come in waaayyy too many forms. The typical major ones are as follows:
You might view some of the above as necessary evils. Still, it’s worth evaluating whether you are getting the bang for your buck that you are looking for in all areas of life. Usually, it is possible to optimize either your taxes, your housing situation, your means of transportation and food choices.
Savings are something we all want to have but don’t want to do. Let’s face it, we’d rather have the opportunity to spend 10$ today rather than have to wait for an indefinite amount of time. Savings, however, are the solid foundation for healthy personal finances. And once you start saving, you need to figure out what to do with your money. You need to start actively managing your money and investing.
The world of traditional financial media is jungle full of creatures who’s seemingly sole purpose is to entertain and fill out airtime rather than to actually give out financial advice. Every time you hear someone saying that the stock market is at a peak you need to beware. At the same time whenever a newsmedia or some analyst claim that the market is about to crash you do not need to worry. As described in the book Thinking Fast and Slow by Daniel Kahneman stockbrokers on average are worse than random at picking stocks. This means that so-called professionals are worse than random at growing your money. I believe we need to have a basic understanding of financial markets and products in order to take charge of your own money and let your money work for you.
So to sum up: To master personal finance we need to have a great understanding of the building blocks. The blocks are as follows:
- Saving and managing your money
Through the next period of time, this Personal Finance 101 series will be based on 10 steps. When addressing each step we will emphasize which of the 3 building blocks (Income, Expenses or Savings and managing your money) we are talking about. The steps we will go through are:
Step 1 – Get a reality check
Step 2 – Get an overview of your expenses
Step 3 – Get your priorities straight
Step 4 – Establish a buffer
Step 5 – Insure yourself the smart way
Step 6 – Free up cash flow
Step 7 – Improve the inflow
Step 8 – Buff up the buffer, think ahead
Step 9 – Take action with your housing
Step 10 – Start letting your money work for you
Thanks for reading.