Most people graduate from high school or college with almost no knowledge of how to handle their own finances! They teach you calculus, chemistry, and the clarinet. But, if you’re like me, you haven’t used those skills in years! I’m kidding, I never played the clarinet…
But you know what everyone in the world uses? Money! So, for all of you out there who may feel a little lost in the world of personal finance, I’m going to tell you the 6 money lessons they never taught you in school. And hopefully, by the end of this article, you’ll have a better understanding of how to get some money in the bank and keep it there.
These are the 6 money lessons you didn’t learn in school! Let’s go!
Money Is a Tool
If you ask most people what money is used for, they’d probably tell you that it’s for buying stuff. And while it is true that we need money to buy the things we need like food and shelter, and we also need money to buy the things we enjoy, like televisions and video games, most people overlook the capacity of money to work as a tool for self-improvement.
Part of the reason that it’s easy for wealthy people to earn even more money is that they know that money can be used to better themselves. What do already wealthy people do? They spend their money on education that makes them more marketable for higher-paying jobs, they read self-improvement books that will make them more intelligent and will give them a new perspective, they hire coaches and mentors to help them improve their productivity and effectiveness. These are all ways that you can use money to improve yourself and invest in your future.
Put some money into an index fund or invest in stocks, sure. But, if you really want to make more money, invest in yourself. Get educated, get a mentor, get someone to clean your house for you so you have time to learn a new skill. Whatever you do, use your money as a tool for your own improvement.
And while improving yourself is certainly important for getting your dream job, you’re still going to be out of luck if your credit score is deep in the red zone.
Build Credit History
When you’re young, you probably hear adults talking about their credit all the time and never really know what they’re talking about. Hopefully, your parents filled you in on the importance of building credit when you got old enough to get a credit card. But, for a lot of people, that conversation never happened.
Credit can be your best friend or your worst enemy. If you think about a credit card as the ability to spend money that you haven’t made yet, you’re going to end up with a lot of debt and a bad credit score. Having a bad credit score could lead to you having trouble buying certain products or services from businesses on credit, it could make it difficult to get a loan if you ever need one, and employers these days are even checking credit scores before hiring people to make sure they can be trusted with company money.
Having a good credit score is your way of showing the world that you’re trustworthy and responsible. And if you’re sending a message that you’re untrustworthy and irresponsible by having a bad credit history, you’re going to find that a lot of doors are going to close for you.
So, start building credit early. Get a credit card and use it for purchases that you absolutely know you can afford. Get in the habit of regularly checking your credit card balance and make sure you pay your bill on time every month. Just spending a little bit of money per month on your credit card and then remembering to pay it off on time will cause your credit score to slowly increase. So, when it comes time to finance a big purchase like a house, the banker is going to welcome you into his office, and give you the best rates available.
Speaking of buying a house, that’s one of the top purchases that people tend to save for. Unfortunately, so many people don’t really know how to save the right way.
Budgeting and Saving
I can’t understand why personal finance is never taught in school. Want to know how often I use calculus on a day-to-day basis? Never! Want to know how often I need to use personal finance? Every damn day! Budgeting is the basic foundation of personal finance, and it works on the basic principle that if you want to see your savings grow and prepare for your future, you need to spend less than you earn.
While this may seem extremely straightforward, you’d be surprised how many people end up spending more than they earn and accumulating debt, just because they aren’t tracking their expenses and budgeting. Here’s where to start: look at how much you earn per month, set out a monthly allowance for everything that you spend money on. $50 for coffee, $1,000 for rent, $400 for your student loan payment, set a limit for everything.
There are plenty of apps and programs out there that can help you do this easily. In fact, we made a whole video about the best ones, so go check it out! Once you’ve calculated all of that, set aside a portion of your monthly income to go directly into your savings. A lot of banks will even set up automatic transfers for you so you don’t even have to worry about transferring the money yourself.
If you do this, first, you’ll start to realize how you can save money by adjusting little things in your lifestyle. Next, you’ll see your savings grow and grow and grow.
I know saving money can seem difficult, especially if you’re up to your neck in student loan debt, which is a thing very few people seem to fully understand.
Understanding Student Loans
Here in the USA, we pay an arm and a leg to go to college. It’s become so bad that they’re actually calling it a “student debt crisis” these days. And while we can all shake our fists at the greedy university system, part of the blame falls on us for not fully understanding our student loans.
When considering what kind of student loan to apply for, you have to consider how much you’re payments are actually going to be, and then you have to factor that into your budget once you graduate. If you don’t, you could end up with more debt than you’re able to repay and have the government or your loan company hanging over your head for the rest of your life.
There are a lot of different types of student loans, and I’m not going to cover them all right now, but one thing you should know is that you should never borrow more money than you need. A lot of the time, whether you’re getting a government loan or a private loan, they’ll offer you more money than is actually necessary. And what does that mean? More debt down the road. Calculate your own living expenses rather than just taking their estimate.
Another good rule of thumb is to never borrow more than you expect your first year’s salary to be. Look at the average salary in the career you want to go into, and go off of that. Make sure you understand the interest rate, and the date when you’ll need to start repayment. If your repayments start before you get your first salary check from your first job, you could have a serious problem.
Student loans are complicated, so do your due diligence, and don’t shoot your future self in the foot by agreeing to a huge loan that you won’t be able to repay until you’re 60.
But maybe you’ve budgeted out your loan payments, and your rent, and your car payments, and there’s no money left over to have some fun with. It might be time to look into a second or even third income stream!
Multiple Income Streams
Most people are taught in school that their life is going to follow a path that sounds something like this: you study hard in school, you get a good degree, that degree helps you get a good job, you climb up the corporate ladder until you can buy a house, pay for your family’s expenses, and maybe once and a while you can take a vacation, until you’ve finally saved up enough money to retire and collect Social Security for the rest of your days.
While a lot of people’s lives do follow a path pretty similar to that, that is so far from the only option. And sometimes you hear about the person who quits their corporate job and ends up starting a successful business of their own, which for anyone working 9-to-5, can sound pretty terrifying. But that’s not the only option either.
In today’s day and age, there are countless ways to start side hustles to earn multiple streams of income. There’s no reason why your corporate job needs to be your only paycheck every month. Start a side business that you’re passionate about. Start a clothing line and start selling it online. Lease apartments and start renting them out on Airbnb. Start making YouTube videos and go viral! These are all things that you can do once you punch out of your main job. And who knows? One day they might earn enough to become your primary income source!
School leads us to believe that you’re going to have one career that goes on a straight and narrow path, but there’s no reason you shouldn’t explore some other routes along the way.
Protect Your Wealth
So, you’ve been working hard for years, paying off your credit card bill, slowly saving money and watching your net worth grow. You’re good, right? Well, if only it were that simple. But, life has a way of throwing a wrench in your plans sometimes, and it’s important to protect your wealth from unforeseen events.
What happens if someone robs your apartment and you have to replace all the stuff you lost? Get renter’s insurance and you get reimbursed for everything that was stolen! What happens if you get hurt and it prevents you from being able to do your job? Disability income insurance will make sure your money doesn’t stop coming in!
You also don’t want your money to get eaten up by taxes any more than it has to, so put some of your savings in a retirement account that the government can’t touch. Inflation can also reduce your wealth if you don’t have it in an interest-earning account. Savings accounts, money market funds, CDs, and mutual funds are all great places to put your money to make sure that it’s earning interest and beating inflation.
The bottom line is: you worked hard for that money, don’t let it slip through your fingers because of things you can’t predict.