I encounter something at least once a day about money or finances that makes me go, “Why in the world wasn’t I taught that?!”
I’ve got the pythagorean theorem, how to analyze a poem, several years worth of music theory, and endless facts about whales all floating around in my head thanks to my public school education, but couldn’t tell you how inflation works, let alone the millions of other things there are to know about personal finance.
At least, not until I took it upon myself to start learning.
But, why? Why did I have to do it myself?
Why aren’t we taught these things when they are LITERALLY A USEFUL, EVERYDAY FACT OF LIFE THAT WE NEED TO KNOW ABOUT AND THINK ABOUT AND ACTIVELY PUT INTO PRACTICE??? (sorry, I’m fine, I’m calm)
You wanna know how many times I’ve needed to know that the mitochondria is the powerhouse of the cell?
Exactly 0. And yet, here I am.
If this sounds super familiar, well then this is your signal that it’s time to take your finances into your own hands and start learning about the stuff that matters.
Luckily, I work with someone who is the legit expert in financial matters and I asked her to give up the goods.
Susan, the boss of us here at My Money My Freedom, shared the 5 most important concepts that
might definitely have been glaringly absent from your education, but can absolutely transform you financially.
Money school is in session, y’all.
#1: Compound Interest, Baby!
Compound interest is a little like “interest on interest,” meaning that your money grows at a faster rate than simple interest alone.
Compounding happens when your investments grow each year — and then the amount it grows by also grows. Should I say “grow” one more time?
It’s a simple concept with absolutely mind-blowing possibilities. The longer you let your investment increase (I didn’t say grow), the more money you will generate.
As Susan likes to say, “I like the money that my money makes, but I like the money that my money’s money makes even more.”
If you invest the way Susan teaches in Infinite Income – primarily in stocks that pay income, you can watch your money grow exponentially without any effort on your part at all.
#2: Watch Out for Fees
Some investments hit you with fees that majorly reduce the amount of money you’re generating.
Like your 401(k) which is quick to enroll you in a smorgasbord of fees.
Those mutual funds you’re offered? Fees. Sometimes big ones.
A mutual fund just pools money from different investors (like you and Nancy in HR) to invest in regular stocks and bonds.
Mutual funds are simple — a fund manager does all the work for you by picking the stocks to invest in.
But, because he’s picking the stocks, you’re stuck with annual fund operating expenses and shareholder fees — all of which goes toward paying managers, legal fees, and sales commissions for when you buy or sell mutual fund shares… among other things.
Same goes for a financial advisor. If he’s charging you 1% to manage your money and invests in a fund like Fidelity® (FFIDX) that charges a fee of .48%, here’s what you pay in fees over 15 years starting with $100,000 that returns 7% a year:
I can think of a lot better things to do with MY $51,382 that give it to some dudes at Edward Jones and Fidelity.
#3: Your Cash Isn’t Safe
Your “cash” — anything in your savings account, checking account, or anywhere else that isn’t generating at least 2.7% interest — is losing 2.7% every year due to inflation.
We know it feels really, really tempting to hold onto your money because you need it now — not later when your investments have paid off.
But, being afraid to invest means you’re automatically losing money to inflation each year, so you might as well invest and earn a little (or a whole lot) extra.
#4: Pay Yourself First
Before you pay for any other expenses — rent, utilities, groceries, manicures, take out, clothes, whatever you spend money on (necessary or otherwise) — pay yourself.
This means automatically routing a portion of each paycheck into your savings or investment accounts (or both).
It’s hard to have your money up in places where you can’t see/feel/spend it, but we promise this pays off in the long run.
While this method requires you to be somewhat frugal in your spending, it can lead to huge savings.
Elizabeth Warren believes strongly in her 50/30/20 rule — invest 20% of your income before you do anything else, then use 50% of your income for bills, then use the remaining 30% for your wants.
#5: Choose Your Partner Wisely
While this might be #5 on our list, it’s the #1 financial decision you’ll make in your life.
Financial issues are the #1 reason for divorce. And divorce is hella expensive.
Not only can your partner influence the type of financial decisions you make while you’re married, but a messy divorce might end up costing you a fortune.
Your average divorce attorney costs $250 per hour, which makes the typical divorce cost over $15,000. Yikes!
Avoid alllllllll of that drama by choosing the right partner up front. We know, we know — easier said than done.
We’re only asking that you walk down the aisle wisely. It’ll pay off.
Your Money, Your Choice
So, how many of these things did you actually know about? Or even consider before? If you’re anything like me, the answer is: not many.
That’s why it’s so important to take control of your financial future now and start making smart, informed choices — regardless of what you were (or weren’t) taught in school.
While it’s cool to know a lot about whales, knowing about what impacts your money means absolute freedom.