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5 Things You Should Know About Personal Finance

5 Things You Should Know About Personal Finance

    Money.  Oh money.  It makes the world go ’round.  It’s one of the biggest reasons for divorce.  It either frees us or enslaves us.  It is the commodity of all commodities.  And yet, as much as many of us make, most of us know so little about how it works.  I blame our parents.  They should have known.  They should have taught us.  Well, either way, I’m about to give you a quick crash course in cash money 101, and how personal finances should work.  Buckle up and enjoy the ride.  Hopefully you’ll be enlightened.

    1. How a credit card works

    Credit cards are an interesting commodity.  They can either work for you or against you, depending on how much you know about them and how smart you are with them.  The biggest problem with credit cards, though, is that we gain access to them before we know enough about them.  Your parents should have taught you how they work, but sadly, many adults don’t even know exactly how they work.  This article should help.  Read it.  Then read it again.

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    2. How to create a budget

    Budgeting is something that people either love or hate to do.  Personally I hate it.  But I keep a general budget because it’s important to know where my money is going.  A friend of mine knows where every dollar he spends goes.  I’d rather divide my money into 2 different accounts, business and pleasure.  I give myself an “allowance” to do whatever I want with monthly, and the rest stays in my “business” account for bills and other living expenses.  Need a crash course on building a budget?  Check this out.

    3. The time value of money

    The time value of money is a simple principal to understand:  basically it states that any amount of money is worth more today than the same amount of money in the future due to it’s earning potential.  This means that if you have $100 to invest today, it’s worth more than $100 a year from now, because it could be gaining value through investments for a year.  Let’s assume you average 9% on your investments… Your $100 today will be worth $109 in a year, whereas getting $100 a year from now is only worth about $91, due to the value of money lost in the year.

    This is very important when you consider the next point…

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    4. Start investing early

    Take a look at this chart.  Basically what it states is that when Saver B starts investing earlier on in life, the time value of his money allows for gaining potential so much greater that even though Saver A invested more than 4 times the amount of Saver B, Saver B has gained more than $400k more than Saver A by retirement.

    Moral of the story?  If you start investing now, you’ll have much more than if you wait till you make more money, even if you invested more in the years to come.

    5. Let your money work for you

    We were all taught that it is important to gain a good education and to learn valuable skills to enter the job force and start a good career.  But here’s what few of us have learned:  more important than having a good job is learning how to make your money work for you.  Consider this: if you can save $500k, and you average 10% on your investment portfolio, you will gain $50k annually without doing anything other than having the money.  $2 million will earn you $200k per year (earning 10%).  $10 million will earn $1 million per year.  The more you invest, the more you’ll make, without lifting a finger (well, other than managing your money, of course).

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    Sure it’s important to have a good job.  But it’s even more important to be investing your money, no matter how much you’re making.  If the goal is financial security and freedom, it doesn’t take rocket science; just a little discipline and sacrifice early on.  And what you’ll gain is so much more than what you could buy today.

    One last note:  $1 at age 18 can’t get you more than a coke, or maybe a dollar menu burger.  But $1 at age 18 is worth $54 at age 60 (assuming 10% again).  Keep that in mind the next time you stop at Starbucks.  Your cup of joe is actually taking more than $150 out of your retirement fund.

    Spend wisely.

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    Photo Credit: aresauburn

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    Ibrahim Husain

    Ibrahim is a management analyst who writes about communication tips on Lifehack.

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    Last Updated on February 25, 2020

    Face Adversity with a Smile

    Face Adversity with a Smile

    I told my friend Graham that I often cycle the two miles from my house to the town centre but unfortunately there is a big hill on the route. He replied, ‘You mean fortunately.’ He explained that I should be glad of the extra exercise that the hill provided.

    My attitude to the hill has now changed. I used to grumble as I approached it but now I tell myself the following. This hill will exercise my heart and lungs. It will help me to lose weight and get fit. It will mean that I live longer. This hill is my friend. Finally as I wend my way up the incline I console myself with the thought of all those silly people who pay money to go to a gym and sit on stationery exercise bicycles when I can get the same value for free. I have a smug smile of satisfaction as I reach the top of the hill.

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    Problems are there to be faced and overcome. We cannot achieve anything with an easy life. Helen Keller was the first deaf and blind person to gain a University degree. Her activism and writing proved inspirational. She wrote, “Character cannot be developed in ease and quiet. Only through experiences of trial and suffering can the soul be strengthened, vision cleared, ambition inspired and success achieved.”

    One of the main determinants of success in life is our attitude towards adversity. From time to time we all face hardships, problems, accidents, afflictions and difficulties. Some are of our making but many confront us through no fault of our own. Whilst we cannot choose the adversity we can choose our attitude towards it.

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    Douglas Bader was 21 when in 1931 he had both legs amputated following a flying accident. He was determined to fly again and went on to become one of the leading flying aces in the Battle of Britain with 22 aerial victories over the Germans. He was an inspiration to others during the war. He said, “Don’t listen to anyone who tells you that you can’t do this or that. That’s nonsense. Make up your mind, you’ll never use crutches or a stick, then have a go at everything. Go to school, join in all the games you can. Go anywhere you want to. But never, never let them persuade you that things are too difficult or impossible.”

    How can you change your attitude towards the adversity that you face? Try these steps:

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    1. Confront the problem. Do not avoid it.
    2. Deliberately take a positive attitude and write down some benefits or advantages of the situation.
    3. Visualise how you will feel when you overcome this obstacle.
    4. Develop an action plan for how to tackle it.
    5. Smile and get cracking.

    The biographies of great people are littered with examples of how they took these kinds of steps to overcome the difficulties they faced. The common thread is that they did not become defeatist or depressed. They chose their attitude. They opted to be positive. They took on the challenge. They won.

    Featured photo credit: Jamie Brown via unsplash.com

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