We are constantly learning and growing our knowledge of personal finance and we thought it would be good to share. Here are some of the things we have learned along the way. This is by no means perfect or a list of the only topics that are important to Personal Finance, but we think this is a good starting point. Over time we may expand this post (there will be a part 2!) or have other blog posts more in-depth into some of these topics.
Part 1
Track Your Finances
One of the most critical parts of personal finance is knowing where you stand. Otherwise, how will you know how you are doing and what needs to be improved? We use Mint (https://mint.intuit.com) for this, but there are other tools you can use like Personal Capital (https://www.personalcapital.com) or YNAB (https://www.youneedabudget.com/). These websites all have their pros and cons, but the most important part is that they track how you spend and save your money. You can see your financial picture over time, which will help you determine what you do well and need to improve.
If you do not feel comfortable connecting your accounts to a website, you can always track your finances on a spreadsheet as well. The obvious downside is that you will need to put in a lot more effort. But for some, that is worth it instead of having security risks. With the number of accounts we have, we decided to choose convenience and automation, but that choice might not be best for everyone.
Debts and Assets
Debts and assets are the basic building blocks for understanding your financial situation. Debts are what you owe, and assets are what you own. Maybe these are not the most technical terms, but this is the way we think about these two topics. Debts are things like loans, credit card debt, and general spending. Assets are things like cash, investments, and property. If you are using a tool like Mint (see above), this is how they break up your finances and calculate your net worth.
Understand Investing Basics
It is essential to understand the basics for investing like what are stocks and bonds, what should you invest in your 401(k) (you can read our 401(k) post here), what are dividends. Investing basics could be (and probably will be) its own blog post. But you definitely need to have an understanding of these topics to improve your personal finances.
Emergency Fund
Having an emergency fund is critical to your financial health. You never know when you will have an emergency and having money that you can access at any point to help with that emergency is critical. How much you should have depends a lot on your circumstances. Do you work freelance or as a consultant with variable income? You should probably have more saved up than someone with a more consistent job. The general rule of thumb is 3-6 months worth of living expenses, but anything is better than nothing when starting out.
Paying Down Debt
This is one of our personal financial principles, but for some it might not be as critical. We believe in having little to no debts. There are times where having debts may be required or may make more sense than buying something outright, but we tend to lean towards only buying what you can afford. Some examples where having debt may be required student loans or a mortgage. Both of these debts may or may not make sense depending on the situation.
We believe you should avoid other types of debts like credit card debts at all costs. That is not to say you should not use a credit card. We use ours every day. But we only pay for things that we can afford and pay off the entire balance every month.
Wrap Your Head Around Compound Interest
Compound interest can be your best friend or your worst enemy. If you invest your money and let it compound, you will be amazed at how much it will grow over time. On the other hand, if you have debts with high interest (like credit cards), what you owe can also increase rapidly over time. Interest matters. Whether you are the one making the interest, or you are the one paying it.
Test Small, Plan Big
Like having little to no debt, we tend to play things safe and test new things in small amounts instead of diving head first into them. When opening new accounts, we tend to put in a small amount at first and see if it works for us. This process might not be everyone’s cup of tea, but we like to play it a little safe.
Part 2 will be shared in the next few days. We will add a link here once it is posted.
All opinions above are those of the writer and not of their employer(s). Nothing written above should be considered investment, business, or legal advice. These blog posts should be used for educational purposes only. This post is also not sponsored or endorsed by any company (unless expressly stated otherwise). For more information, please read our Terms.