In the first place, what exactly do you learn about personal finance in college, to begin with? Credit? Investing? Financial Management? Or did you merely enroll in the classes you needed to pass the graduation requirements?
Indeed, these classes were essentially useless for the majority of students, just as mathematics, astronomy, and anthropology. The more time has passed since I graduated from college, the more I regret how much knowledge was left out. We’re told by the outside world to go obtain an education and a job, and everything will be fine. But regrettably, it’s not that easy!
Hence, you need to know a lot more about money than what you will ever learn in school if you want to excel in the world. Personal finances are the foundation of all these things and all f them
Then to save you from the hustle and bustle of having to learn from your mistakes, our team of experts have compiled a list of ten most important rules that everyone should abide by to be ahead of the game with their finances.
Grab a pen and paper, here are ten of the most important personal finance rules you will never learn in school in descending order. Let’s begin.
10. Buying Your First Home
You have probably heard of the popular statement, ‘If you want to buy a home you have to save up to 20% of the value for down payment.’ If you don’t you will be forced to pay private mortgage insurance, which could really dent your account. What you won’t learn in school is that while higher mortgage payments may be painful, the financial trade-off between paying more money now and waiting to save up the 20% deposit could be worthwhile.
When we look at macroeconomic factors in the US over the past decade, the appreciation rate of real estate has really gone up but the wage levels have remained stagnant. So it makes it unrealistic to start saving up 20% of the home value as it will only increase drastically over the years.
The rule behind this is; if you have the capacity to save the money within at least five years comfortably, then go for it. But, if it will take you longer, you’ll be chasing a moving target as the prices increase.
9. Save Save Save
In school, they will teach you to save at least 10% of your income. But, let’s be honest here, this isn’t enough to retire on. Well, unless you are earning millions. For most of us with a regular paycheck, a decent savings percentage will be about 25 – 40%.
We’re not saying 10% is entirely useless, it could be a great starting pint to build that savings muscle. In order to save more, reduce your expenses and unnecessary costs. Instead of buying that cup of coffee every morning, put that money in a savings account with a better interest rate.
8. Emergency Fund
You may have never heard of an emergency fund from school. But, you’re lucky you have us to teach you about it. Recent statistics show that up to 40% of Americans don’t have the funds to cover an emergency of $400. This is an alarming statistic that only shows how people disregard the importance of an emergency fund.
What if you lost your job today? Would you have enough money to cover your costs? The golden rule is to have six months of expenses costs saved up somewhere, but, we suggest that if you can make it more, the better.
7. Budgeting Basics
Although it’s crucial in life, budgeting isn’t covered in the classroom. Regrettably, not learning the fundamentals of budgeting in college can put you at a disadvantage when you graduate, especially if you move out. One may experience hardship after hardship if they are unable to manage their finances and distinguish between wants and needs.
Each should understand how to organize a lifestyle that is paid for by earned income. This includes knowing how to budget for all expenses while also making sure there is money left over for basics like groceries and savings. Budgeting is crucial, but let’s face it, nobody like keeping track of every single dollar they spend.
And now what you can do instead is what we refer to as tactical budgeting. This involves creating budgets and plans over a long period of time. For example, you can identify what you need every month and create a budget with the needs, wants and respective costs over the next six months. From the plan created you can then separate the amounts into different accounts to ensure you don’t spend beyond your budget. Then occasionally you can refer to your list to stay on track.
The power of compound interest is possibly the best-kept secret. The one thing every young people have as an advantage over everyone else is time. While they may not achieve their financial goals instantly, they have an upper hand when it comes to investing. All they need to do is tap into the powers of compound interest.
By setting aside small chunks of money in a high-interest account, young people can amass great wealth that will compound over and over again through the years. To show you just how important compound interest is here’s a great example. If someone gave you two options the first choice a three thousand dollars and the second a penny that doubles up in value every other day.
Most people would choose the first choice, right? You probably did too… But if you do the math, the second choice would be worth $10 million after 30 days only! If that’s not enough to convince you to start taking advantage of this incredible opportunity to grow your wealth, then I don’t know what will.
5. Secrets of Credit
Most young people right after getting their first credit cards, end up maxing them out. They then end up with a life full of debt, where they are forced to pay up huge chunks of interest rates, and in some cases, this results in late payments that could adversely affect them.
What most people don’t know is the importance of credit scores and maintaining a great credit history. But they would probably be aware of the secrets in schools paid more attention to training them on this life skill.
Here’s what you need to know; Your credit score is one of the most important parts of your financial health, and it generally determines your financial position as an adult. With a proper score, it’s a lot easier to purchase a house, get a car, get a business loan and makes it much easier to achieve other milestones in the future. We can no longer ignore the importance of credit.
Everyone needs to know how to build credit and have a proper score all the time. Here are a few pointers on how to achieve this. One, get a credit card. Most people think getting a credit card is a mistake but it is actually quite important in building your credit score.
Let me give you a good example, so I have a friend called Kevin, just like some people he avoided getting a credit card for most of his young years after graduating from school. Doesn’t sound like a big problem, right? But when he started looking for a home to buy and a car, he couldn’t get any loan approved because his credit statement hadn’t been established.
Here’s how it works, when you get a credit card and use it, financial institutions record all your transactions and interest payments. Based on your efficiency, they will assign a score to your name. Now when you go looking for a loan, that score will determine the loan amount you can receive and the interest rate.
Two, always pay your debt in time. There’s no other way around this if money is due today make sure you pay it today!
4. Rules of Insurance
However, if no one depends on you financially end the policy to save on money. In addition to life insurance, get insurance for other aspects and assets you own. This includes your car, home, expensive assets, and health.
You can also get umbrella insurance which covers different policies and guarantees a discount if obtained from one insurer. Take your time to get different rates and the features available before choosing a company to insure with.
Taxes are such a broad topic that is hardly ever discussed in school. It is important to understand how they work if you want to be on the right side of the law.
Before you get your first paycheck or make any sales from your business, learn how to calculate the tax rate and find out how much money you will be left with. This will help you to determine whether a job offer will meet your financial needs and what the appropriate pricing strategy for your products or services will be.
Luckily, there are plenty of online calculators that will do the dirty work for you. They will show you the gross pay, the amount payable in tax and the amount left in your account, also known as the take-home pay. For example a salary of $35,000 a year in Manhattan, Newyork will leave you with about $26,399 after tax deductions.
Also pay attention to the marginal tax rate that affects your raise. For example a raise of $35,000 to $41,000 a year won’t give you an extra $500 a month but $345. Make a habit of preparing your tax returns yourself, there is a lot of misinformation and bad advice out there. Be careful!
2. Guard Your Health
A hospital visit for an injury like a fractured knee can cost thousands of dollars without insurance. If you’re finding it hard to meet your monthly health premiums then what will happen if you end up in the emergency room? You may end up having to borrow money to pay for your medical bills burdening other people who had plans with their money.
Doesn’t sound fair right? If you don’t have a medical cover get one ASAP! Also, taking care of your health can end up saving you a lot of money. This involves eating the right foods, maintaining a healthy weight, regularly exercising, not consuming alcohol and other addictive’s excessively. You don’t want to be sorry, so guard your health today!
1. The College Debt isn’t fully Necessary
Contrary to popular belief, you don’t actually need student loans to receive a college degree—the latter can be obtained without one. 85% of recent grads lament their high student debt loads and the significant amount of money they must spend paying it off as soon as they begin working. These loans are not necessarily required in order to complete your degree.
Some colleges, including Davidson College in Charlotte, offer financial aid to students to prevent debt accumulation. Some institutions provide top-notch instruction at a much lower cost than private institutions. You may also enroll in a less expensive institution, work while you study, graduate quickly, or start your education at a community college.
But, we’re not saying debt-free schooling should be everyone’s goal. In some cases it might be worth it. If you’re set to launch in a very high-paying career path, then a few thousands of dollars shouldn’t get in the way.
And however, don’t establish this debt as the main factor of existing as a college student. There are so many other ways of achieving your career goals.
We hope you learned a few personal finance rules, and that’s it for today. If you’re still here, you probably liked this article. If so, please comment positively.
Don’t forget that we offer regular finance information that can help you prosper, so pay attention and be sure to check back frequently for new posts.
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