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What does school teach you about money?
With financial stress at an all-time high and financial literacy at an all-time low, something must give. We need supplemental personal finance education.
In this article, you will learn about 20 different financial topics that your government school has failed to teach you.
20 Things School Didn't Teach You About Money
1. Credit Cards Aren't Evil
Credit cards often get a bad reputation because many people abuse them.
Using credit can be quite helpful. You can borrow the money for a large purchase and pay off the balance in full at the end of the month. By doing this, you will pay 0% interest.
Way better than taking out a loan.
You can also take advantage of a cash-back card. Yes, the credit card company will give you back between 1%-5% on all your purchases. If you spend $1000 per month, you will likely receive between $10-$50 back.
Figure out the difference between using a credit card to help your financial world and spending on things you want. Until you are financially secure, you should be focusing on increasing your wealth with cash-flowing assets.
The most important thing for young people and credit cards is never carrying a month-to-month balance. Most of your paycheck will be going toward interest and taxes if you carry a balance. The average credit card interest rate is over 20%.
More wealth will give you more freedom. That’s the goal here.
Many cards offer promotional offers. You can get $100 cashback when you spend $1000. That’s a 10% return on your money spent. Take that $100 of free cash and begin investing.
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2. Your Credit Score Can Hurt You
What you don’t know can hurt you. A great piece of financial advice is to work toward a good credit score. A low credit score can cause you to pay more interest on a mortgage or be denied renting an apartment.
Having a blemish-free credit score at a young age is possible. It may feel like a slow process to establish and improve your credit. Your credit score will increase as you manage your money better and increase your financial education with real-world teaching.
Make sure to check your credit report. You can do it for free once a year, and all your accounts will be listed. There are three bureaus, and they are all separate from one another.
Your report is probably spotless, yet you want to make sure there are no errors. If you find an error, go to the website of the specific credit bureau and dispute it. A friend of mine had someone else’s foreclosed mortgage on his report. Their social security numbers were different by one digit.
The real world does not care if they made a mistake with your credit scores. You have to ask for it to be corrected.
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3. Investing Isn't Just for Rich People
With the rise of financial smartphone apps, anyone can invest. Start saving early, and you will take advantage of compound interest. Make it your business to become proficient when you manage anything finance-related.
Many companies offer a 401(k) retirement account with an employer match. You can choose a certain amount of each paycheck to be automatically invested in your 401(k).
If you are self-employed or your employer does not offer a 401(k), you will use an Individual Retirement Arrangement (IRA) account.
There are many apps in the business of investing. Many of these apps will teach you about investing. You will need to learn to manage your money independently, though.
4. You Need an Emergency Savings Account
Right when you have your personal finances in order, something terrible happens. When it rains, it pours. The surprise tax, engine repair, or medical emergency can potentially occur in any of our lives.
To be proficient in personal finance, you must be ready for when life throws you for a loop.
Have a separate savings account, and whenever you earn money, transfer some into this emergency fund. Use your paycheck to save and proactively finance that engine replacement on your car. When decisions are made reactively, a wrong finance decision is made.
5. Student Loans Usually Suck
The education system will encourage you to go to one of your dream schools and finance it with student loans. School doesn’t teach you how to pay off a student loan.
Most students fall into the trap of graduating with a degree that gave them a lot of knowledge but no skills.
Schools have a vested interest in having more and more students. Keep this in mind when choosing a college. If you can avoid student loans in total, do it.
6. Personal Finance Mistakes Happen
Don’t ignore your mistakes. They will come back to haunt you.
If you have a $20 balance on your electricity bill and don’t pay it, you will be sent to collections, and your credit will suffer. You may be denied housing based on your credit history.
When you swipe your credit card or sign a contract, you are making a promise. Remember when you were younger, and your friends would say, don’t break this pinky promise? The same applies at any age.
Keep the promises you make.
7. You Don't Have to Work a 9-5 to Make Good Money
Go to school and get a good job. I have heard this phrase ad-nauseam throughout my life. Unless you are incredibly passionate about your job, you will most likely come to resent someone else telling you to eat lunch precisely at noon.
There are many other ways to earn a living without being a W-2 employee.
8. Assets Lead to Wealth
Accumulating assets is the key to winning the personal finance game. Assets pay you each month, while liabilities take money from you. Once you have assets paying your bills, you can choose not to be tied to a traditional 9-5 job.
The freedom to live life and manage your time as you see fit is so sweet.
9. Tracking Your Finances is Important
If you do not have accurate knowledge of your finances, how will you improve them? Tracking your expenses is a top priority to have success with money.
Use a notepad, your phone’s note app, or an automated smartphone app. Find a way that works for you and stick to it.
You will learn a lot about yourself and your habits. From there, you can make adjustments as you see fit.
10. When Young Income Matters More Than Investment Returns
Develop a habit of investing money every month. If you begin investing in a down year, you may become discouraged.
Remember, you are setting yourself up for retirement down the road, not today.
Compound interest will be your friend over the long term.
11. Don't Be Afraid of The Market Crashing
Your time horizon is years, not months, and indeed not days. Your mental health will suffer if you look at your finances every day. You will be in a much better financial position taking a weekly or monthly look and seeing if you need to make any changes.
Market corrections and crashes will happen multiple times in your lifetime. Downturns are a normal part of markets. Stay grounded in your long-term perspective.
12. Plan For the Worst, Hope For the Best
No one knows what the future holds, and that's why it's essential always to have a backup plan in case things don't go according to plan. Have an emergency fund that is fully funded and be diversified in your investments.
You cannot plan for everything. You can be proactive in how you prepare for when life is tough. Much better to save money today and be prepared if you lose your job.
13. Debt Can Be a Good Thing
Debt can be used to multiply your wealth faster than if you pay cash for everything.
Using debt wisely takes a particular knowledge.
If Apple is doing something, it must be working out for them. I’ll follow their lead, and the naysayers of debt can enjoy their cash and slow net-worth growth.
14. Investments Always Carry Risk
There is no such thing as a sure thing. Be very careful of any investment that has a lot of hype. Only invest in something you understand. Remember what Warren Buffet says. Be Fearful When Others Are Greedy.
15. Saving Money Isn't Always a Good Idea
With inflation on the rise, saving money is become a worse idea by the day. Saving cash is a good idea for short-term cash reserves and an emergency fund.
You should not be saving money for the sake of psychological security or because your dad told you it’s good to save.
Have a plan for extra money and deploy it to earn more money. Money sitting and doing nothing does not help your net worth.
16. Your House is Not an Asset
Where you live is a liability. A liability takes money out of your pocket each month.
Having positive equity in your primary residence does not make your house an asset. The only way your primary residence is an asset is if you are renting out rooms or have a duplex.
17. Buy Quality, Not Quantity
Better to buy one high-quality item that will last years. Buying fast fashion is not environmentally friendly and will last you months (maybe weeks).
The folks at Buy it for Life have it right.
18. It's a Good Idea to Have Multiple Income Streams
Most millionaires have seven streams of income. If you are a W-2 employee, consider taking up a side hustle to make extra money every month. I remember the first time I was paid $100 for some freelance work. I was ecstatic.
The faster you create multiple streams of income (preferrable passive), the quicker you’ll become a millionaire.
19. Don’t Take Advice from Broke People
Most people don’t know anything about money. Unless you can verify they have success in their finances, be wary. Government school teachers come from an education system that is flat-out broke.
The California pension for teachers is over $70 billion underfunded. Soon they will not be able to pay their obligations.
Your teacher’s budget is not better.
Only take advice from trusted sources. Just because they share your last name does not mean they will give you correct financial advice.
20. Having a Budget is the Key to Financial Stability
Financial Education is Important
Keep reading. Keep learning. Financial education is not about how much money you have. It’s about growing what you do have and, at some point, having 100% freedom with your time.
Continue improving yourself, and in due time you will understand how to manage your money.
As a certified credit counselor and syndicated writer at MaxMyMoney, Max has coached over 250 Millennials to help take the stress out of money. When Max is not coaching, you'll find him reading financial books, indoor cycling, or visiting local pawn shops looking for swiss-made watches.