For most of us, learning at school included mathematical equations and scientific laws but not enough about managing our money matters. Financial literacy has been a part of the UK’s national curriculum only since 2014, but it still doesn’t cover everything you should know about money and managing your finances.
Considering the constantly changing and uncertain economic climate and the incremental rise in average living costs, planning and securing your financial future becomes even more necessary. It becomes more important than ever to learn and understand how financial management works. However, it’s never too late to learn about money and begin charting your path to achieving financial freedom.
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5 Personal Finance Lessons to Learn
How to Allocate Your Spends
Get a degree, get a job, and life will take care of itself. In all likelihood, you have received a similar directive as a child. But do you remember discussing what exactly should be done with your paycheck? We’re here to help you understand these aspects of your finances better.
What You Should Know
Ideally, you should know how much money to allocate for necessities such as your home’s mortgage or your apartment’s rent, for the nonessentials, and lastly, the amount to save for a rainy day or invest. Saving a fixed amount of money from every monthly paycheck must be non-negotiable. But how much?
Of the multiple approaches, one popular approach is 50-30-20, where you spend 50% on your needs, 30% on wants, and 20% on savings. Pick the one you’re comfortable with and can stick to in the long run.
Investing Is for Everyone (Not Just for the Rich)
It’s quite normal to picture those who invest regularly as stockbrokers in suits and ties. You may have restricted the term investment to buying property or similar real estate assets. It’s likely you’ve not been taught what investment could do for the average person.
What You Should Know
If you’re yearning to increase your wealth in the long term, investing is probably the most powerful tool at your disposal. The earlier you start investing, the better; ideally from your first employment.
Investing your money in long-term savings accounts, index funds, and bonds is not as complicated as you think. You can allocate a fixed percentage of your monthly paycheck into either of these, which deliver in the long term and require minimal adjustments.
How Interest Rates Work
If you don’t understand how interest rates work, you’re not alone. Interest rates can seem baffling for most people. Interest rates are a percentage of the principal amount that a lender charges when you borrow.
In the UK, interest rates are set by the Bank of England and commercial banks. While the former fixes the ‘base rate’, the latter adds more, depending on the services offered. A high base rate is great for savers but is harder on borrowers as mortgage rates rise.
What You Should Know
If you don’t pay your credit card bills in full, you’re likely to pile on more interest fees quickly. It is best to be wary of advertisements for lower interest rates from certain credit card companies, overdrafts, and mortgages because you have little chance of getting these offers unless your credit score is perfect.
Saving Money for a Rainy Day
Life is full of surprises, with twists and turns, and things can go wrong when you least expect it. While you can’t prevent things from going off track, you can certainly prepare for such an eventuality.
That’s what putting money away in an emergency account is for. No wonder why it’s called ‘saving money for a rainy day’ because you put away money for when you need it the most. Even if you haven’t learnt this in school, it’s better to learn this fact today than never.
Sudden home repairs, medical expenses, family members seeking help, and other unprecedented expenses can put a dent in your personal finances if you don’t have a backup to support you.
What You Should Know
Park some cash every month into a separate savings account and leave it there. Come to a good number or about an amount that covers at least three to six months of your routine expenses. You should only dip into this fund when problems you can cope with arise.
You Don’t Have to Work All Your Life
Most people operate under the notion that they need to work till they’re 66. After that, they receive a retirement pension from the government to support them in their retirement years. But you don’t have to follow this set path.
What You Should Know
It’s quite possible to retire earlier than the official retirement age if you choose to. Attaining financial freedom in your late forties and early fifties is quite possible by investing wisely, increasing your income and having a sound retirement plan.
You can learn more about those who’ve successfully retired early and choose whether to continue working or not.
In Conclusion
After reading this article, you may be surprised by the vital lessons that were never learnt and the important things the average individual still needs to learn. But it’s never too late to learn, gain the knowledge, and begin your journey towards managing your personal finances and achieving a secure financial future.
