If you know how to save, how to calculate your net worth, and how to trade in the stock market to increase your financial wealth, you could financially function well as an adult. Add to this your knowledge and execution of concepts like the power of compounding, inflation, and insurance, and you need not worry about turning old.
You are bound to make money mistakes in your life and regret some of them because life is quite unavoidable. Given the fact that people consider talking about money to be taboo or do not have enough conversations about it in the first place, you are bound to be naive or uninformed about some money topics.
Money might even overwhelm you and you might have procrastinated taking action on your money situation, so much so that you are now 30 and you did not even realise how time slipped by.
So, if you are reading this well before turning 30, here are some financial concepts you need to know:
1. Pay yourself first: Though this seems to be very simple, it is the most underrated financial concept that many find hard to execute. ''Paying yourself first'' or ''saving money'' means when you receive an income, you set aside a certain % of this gross income and pay yourself first and then pay for everything else.
This concept may be tough to digest for those who believe that one should pay all your bills first, then spend on your needs and wants, and only then save the balance money, if there is any left. But this doesn't really help because you compromise on your saving goals and might get on a paycheck-to-paycheck cycle.
If you feel tempted to spend your money when it is available right in front of your eyes, set up an automatic system where money is transferred to your savings account before you even see what's available in your bank account to spend on other expenses. Be there for yourself before you want to support others.
2. Assets and liabilities: You might have thought that when people usually invest in homes or swanky cars, they are investing in assets. Maybe when people take debt, it's a big liability. But if you check the actual definition of an asset or a liability, assets can include money or items that will help you receive money in your pocket whereas liabilities are items that will put money out of your pocket. So learning about these basic concepts of what real life terms actually mean is essential.
In RICH DAD POOR DAD I stated Rich Dad’s 3 LESSONs. 1: Your house is not an ASSET 2: SAVERS are losers. 3: The rich do not work for $. The rich are entrepreneurs who do not need a job, create jobs, create own assets, and do well in market crashes. 2022 is your time to get richer— therealkiyosaki (@theRealKiyosaki) September 22, 2022
3. Calculating your net worth and cashflows: You might have gloatingly read about Akshata Murthy's massive networth in your news, but do you know how to calculate your own net worth? Your net worth is basically your total assets less your Total Liabilities. You should also learn about the difference between cash flow and earnings. So the next time someone puts you in an awkward situation by asking you questions about your money situation, tell them about your net worth and ask them theirs.
When someone asks " Trading se kitna kama lete ho ?? " 🤣🤣 pic.twitter.com/wDBXr1oShI— Harneet Singh Kharbanda (@TraderHarneet) January 18, 2019
4. Insurance: Insurance is that one product that you buy with the intention of never having to use it. It is also that one product that you buy once and will last you for a long time, which is why you need to get it right when you buy it. Having sufficient insurance for you and your family must always be a priority and selecting the right insurance policy to cover all your needs, be it health, life or even car insurance is MANDATORY. You got to know how the policy has to be implemented, who to call, when to renew, what to do when you are yet to renew any insurance etc.
5. Inflation: Though inflation may sound like a fancy word and you might find the concept of how it works to be a tad bit confusing, you should know about it to live a healthy functional adult life. Check for the general and food inflation rates in your area, check how these are different in different countries and why such conditions exist. You should also spend some time understanding how this cycle works and how the world operations (like banks increasing interest rates) are linked to this. This gives you an idea of how much your investments should earn so that your investments grow at a higher rate than your expenses.
6. Emergency funds: Think of emergency funds like a wad of cash bundles that are kept in your wardrobe safe that will help you in case of any emergencies. Say you have to pay for some unexpected expenses or need to support your close ones who want to pay some cash on a deadline but don't have cash on them at the moment. This fund is for those kinds of emergency expenses and people generally save up about 6 months of monthly expenses as their emergency funds.
7. The power of compounding: Everything financially compounds. Be it your investments, your savings, or your debt. The compounding essentially adds interest on interest and wherever your money stays, it grows. So if you invest your money somewhere, your money will generate earnings from both the initial principal amount and the accrued earnings from preceding compounding periods. If you buy a loan, the bank generates wealth through you.
8. Stock market 101: Yes people have lost a lot of money in the market and everything looks confusing, but knowing about the basic bull and bear market trends and investing accordingly won't hurt you. In fact it's an interesting way of increasing your financial wealth consistently and fulfill your financial goals.
What other financial concepts do you think one should know before they turn 30?