Khan Academy is a great source of learning and I’m thankful for the addition of the section named “Life Skills” lately. The section contains short courses on significant topics that are amiss in college and school education vis-à-vis personal finance, college admissions, careers, and entrepreneurship.
This writeup contains notes that I made while learning Personal Finance from the same set of courses; it is a highly recommended series for individuals who are looking to start as a layman into the world of managing their money and living through less stressful finances.
Never ignore thinking about finances; it’s tempting to ignore it because we fear our financial limitations and want that fancy car!
- Live sustainably, live below your means!
Optimize expenditure to gain financial freedom, and spend towards experiences like spending more time with family.
- At the beginning as a new grad out on a job, it is very tempting to spend extravagantly and get that fancy flat - the excitement wears off in a month and stress kicks in of paying the loans and EMIs.
- Aim to save first and then buy that commodity - avoid loans, EMIs, and other entities that charge interest.
Don’t struggle and stress to own more liabilities - have the mindset of spending money on bringing peace and happiness for longterm rising above living from paycheck to paycheck.
Marriage is one of the most important financial decisions - financial compatibility and similar values of the partners is very much required, one cannot be wanting to spend lavishly and other saving.
Teach children about financial stress and “can we afford this?” - it is very NOT obvious in the contemporary plastic money era how buying functions.
Explain lucidly to children when they ask financial questions like “can we get unlimited money from ATM” - helps in making them comfortable with talking about money (which is otherwise considered as taboo as talking about menstruation and sex).
- Talk to children and get them thinking about taxes, how it works, who pays for the roads, and where taxes go - in general about how the economy works.
Talk openly about money with parents - understand their buying habits, financial stresses, and budget tips.
Plan for long term expenditures like child’s college and INVEST each month - example calculation for college fees.
Track and manage spending in the following manner:
- list monthly recurring payments
- necessary expenditures like grocery
- set up automatic payments for recurring and savings
- remember “envelope method”
- use money management tools
Pay credit card charges in full.
- Three simple principles of an efficient monthly budget:
- make sure needs are covered
- manage debts and savings
- avoid overspending
- Important steps to create a budget:
- Note your net income (total - taxes)
- track spending
- set short-term and long-term goals
- make a plan separating needs and wants
- adjust spending habits if necessary, shedding from want-to-haves then need-to-haves
- setup reminder to review the budget monthly
- remember small savings add up to large in the long run
Create an emergency savings fund to pass by 6-9 months. The fund should be able to cover:
- insurance and debt
- personal needs
- Put away tax refunds, bonuses, etc. in emergency savings and also regularly add savings till the desired amount is reached.
- Decide wisely where to store and invest the emergency savings.
Find small habits to save money in the long-run. Some habits can be:
- making your coffee, lunch, meals, etc.
- stay healthy by riding a bicycle to work
- create a list of things to buy beforehand and leverage sales and coupons
- be wary of psychological tricks at times of sales and discounts, do not overspend
- be selective in what’s important like brands and quality
- plan meals ahead of time
- save by using electricity during non-peak hours
- avoid spontaneous extravagant spending with friends, plan outing beforehand
Create a list of items you need to buy and contemplate over the same before you decide to buy - most of the items would get removed from the list in a week or two.
Analyze spending and find unique ways to save costs to create large corpus over time.
- Set aside dedicated 1-2 hours each month to analyze, save on (find good deals?), and pay bills. Following are some techniques to reduce bills
- always negotiate and cut extras like unwatched channels
- pay extensive attention to the details of phone bill
- save on house by negotiating
- use electricity very wisely and during non-peak hours
- be smart in choosing insurances and review them regularly - research is very important
The aim of saving money is to use that money to enjoy pleasures such as going on a vacation, gifting your children that PS4, etc. DO NOT SAVE JUST FOR THE SAKE OF SAVING!