I didn’t know much about money when I was in my 20’s.
I knew how to work, I knew how to buy stuff, and I was smart enough not to run up my credit cards.
Other than that, I didn’t really know much. The fact is money and finance is a subject which you either love or you hate.
Most of us try to avoid the subject of finance because most of our parents avoided the subject.
However, I believe now that it’s something every parent should teach their children and it’s a subject every adult should be interested in.
If I could go back in time and teach myself a few things when I turned 20, here’s what it would be.
Time Value of Money
The time value of money is a concept which states money in your pocket today is worth more than that same money in the future. Another way of looking at it is that if you have $10 in your pocket today, tomorrow it will be worth less than it was today.
That’s because money can be invested and multiplied. So, $10 today could be $11 next year if you invested it. So, getting $10 next is worth less than getting $10 today because of your ability to invest.
This applies to all of your money, including debts. So, paying off a debt today is worth more than paying it off next year.
If I understood how much my student loans would accumulate (because I deferred them) over my years of college, I would have worked harder to pay them down before leaving college. Or, at the minimum, I would have paid the interest every year.
Inflation is closely related to the time value of money. It is another reason that every day your money is worth less.
50 years ago, $10 was worth a lot, however, these days it can barely buy you anything at all. Inflation is an important thing to consider because you will need to think about your future.
If you are saving a retirement fund for yourself, you may need to save a lot more due to the increasing costs of goods as time goes on.
So, not only is investing early important to make your money worth more, you need to pay attention to inflation so it isn’t worth less!
I did learn about this in college, so I can’t say that I’d have taught myself something I actually was taught. But, it was so important that I want to reiterate it.
A sunk cost is any money you’ve spent that you can’t get back. The idea is that sunk costs should not influence future behavior.
Do you sit and finish it since you already paid?
The answer is no. You can use those 2 hours to do something more fun. There is no reason to suffer through the rest because those sunk costs should not influence your behavior.
Asset allocation simply means how you allocate your investments. Traditionally, it is suggested to spread your investments out across different investments. The idea is to lower your risk of losing the money you put into it.
But on the flip size, the more diverse you are, the lower your potential returns. That’s because the more investments you have, the more likely one of them will be a failure.
Think about it this way, if you invest in one thing, it could be a crazy success or a total failure. If it’s a huge success you make a ton of money.
But, if you got it wrong, you could lose your investment.
Diversifying makes it so you’ll probably get one or two awesome investments but you’ll also get one or two failures. So, you’re potential returns go down, but your potential losses decrease as well.
Net worth is something I only started tracking in the last couple years.
Your net worth is the total value of your assets minus all of your obligations.
Net worth is important because it represents how well you are financially. If your net worth goes down, you are making some bad decisions while if it continually goes up, you are making good decisions.
It’s important to track this, even at a young age. Every month look to see if you go up or down in value and make adjustments accordingly.
The only thing more important than your net worth is your cash flow.
Every investment you make should create some sort of cash flow (unless you earn so much that your income just doesn’t matter anymore).
In theory, it doesn’t matter what the investment is worth, as long as it provides the cash flow you need to support yourself.
So, if all of my properties lost half of their value, as long as the cash flow is the same then I’m happy.
Here are a bunch of ways to create $10,000 per month in cash flow.
Five C’s of credit
When a lender evaluates you for a loan they will look at several different factors: character, capacity, collateral, capital, and conditions. All of these are the parameters which you will be measured against for a loan.
You can also think about your credit rating and whether you are deemed financially stable enough to take on a large sum of money and pay it back on time.
Bad credit can be very smashing to your future and you can change it by using a bad credit loan to prove you are trustworthy enough to take on a new loan.
High Debt Exposure? Here’s How To Fix It
Everyone at one point or the other have found themselves in either small or big debts. It’s not uncommon.
Companies or business owners borrow constantly to finance their business; students borrow to finance education; and people borrow when unforeseen expenses arise.
It becomes a burden when it piles up so much that it becomes hard to get out of, or to payback, leading to financial setback.
Call Your Creditors
The worst decision we can make when in debt is to hide.
The longer we do this, the more difficult it would be to resolve our issue. I think the first step we should take is to call our creditors to explain our present situation.
Creditors could be commercial or micro-finance banks, fellow business partners or even friends. They might be aggressive or furious, but they’ll be informed, at the very least.
- Have a clearly stated payback plan before calling.
- Do not make promises you cannot keep.
Following this step might result in the following:
- Creditors might reduce the payment.
- Might extend the period of payment
- Might reduce the interest rate on the money borrowed.
- Or charge debtor to court or jail.
This approach might not lead to a positive end result for everyone, but once in debt, we owe creditors a trail of information that assures them that they’ll get their money back.
Cut Spending And Make A Realistic Budget
A quick approach to getting out of debt is to cut our spending. This seems really hard but it’s inevitable.
A way to do this efficiently is to save, make a realistic budget weekly or monthly and stick to it.
Stick to it!
I am repeating this again because it is easy to prepare a realistic budget, but carrying it out and following it is the hardest part.
When doing this, we can take note of the following:
Review what you spend money on the most and try to cut down cost.
For example, I spend a lot on data subscription and I’m presently cutting it down.
Cut down wants (luxury items) and focus more on needs.
Allocate spending ratios to expenses e.g 15% to food, 7% to clothes, 20% to transport etc.
Make sure after preparation, you have enough left to pay installments of your loans/debt.
Doing all these, would help save towards paying back the debt.
This article originally appeared on Piggybank.ng. Follow them on Facebook , Twitter , and Instagram.
How You Can Do MORE With Your Money
The more money you have, the more things you can do.
But what are you going to do with that extra money anyhow?
People tend to blow the money that they barely have. Sometimes they blow money before they even have it!
So, think about what you can do with your money, and think about what you are doing at the minute. Are you even covering the basics and making sure that you have a nice bit of savings behind you?
Most people aren’t. When thinking about what to do with money, people often jump to spending and thinking about the materialistic things that can be had in life.
But there really is more to life than that, and that’s what people forget about. Money can be used in such a way that it can go in your favor, rather than it feeling as though it’s just being thrown down the drain.
So, to stop you throwing it down the drain, we’ve come up with some great tips that should help you do more with your money. Have a read on, and see what you think.
Develop Your Home
Developing your home is sort of like a long-term investment option.
If for example you have a family home, it might have a few bedrooms, and perhaps more than one bathroom. This is great, and it probably gives you all of the space that you need to be able to function as a happy family.
However, your children hopefully aren’t going to live with your forever, and there comes a time where they’re going to have to move out.
When they do, you’re not going to want to live in some big house without any company apart from the two of you.
However, when you come to sell, you might not feel as though you’re getting a good enough price, even though the house might be spacious and in a good area. So, you need to think about what it might be lacking.
This is where your development head comes on, and you think of all of the things that you can do to increase the value of your home for a future sale.
Even though it might feel as though you’re wasting your money to begin with, it’s all about the money you’re going to make in the future.
The types of things that you want to be thinking about are extensions and renovations. You don’t necessarily need to extend to create another room, or another bathroom either.
Another simple option is to buy some smart home technology which might help improve the value of your home.
Could You Donate?
Doing more with your money doesn’t necessarily mean you’ve got to do more to benefit you. Sometimes, the selfless things we do in life will benefit us the most.
Plus, this one will definitely make you feel humbled and honored. So, when thinking about donating, the charity that you donate to is important.
You can either pick a charity that you feel you can relate to. Perhaps someone in your family has been affected, or is being affected by a certain disease or illness.
Or you could think about donating to human and wildlife aid organisations. The work that they’re doing around the world is revolutionizing some countries. Without it, some countries would struggle to get the majority of their population alive. But, it’s not just humans who desperately need your money.
Animals are crying out for help, especially those that are endangered at the moment. You don’t necessarily need to donate a fortune, literally every little does help when it comes to donating to charity.
You could even set up some form of fundraising day, and get your whole community involved. All you would need to do is pay to host and set up the event, and donate all of the proceedings to charity.
You might be able to make more this way, and you’re definitely going to raise some great awareness for whatever charity you’re trying to help. There’s also the option of going on pages such as gofundme, and figuring out which people need your help the most.
Some of looking for money to complete humanitarian aid missions, others are desperately seeking money for the medical treatment they need. Putting your money to a good cause like this is sometimes the best option, especially when you feel as though you have money to blow.
If you don’t want to give away your money, and your main aim is to make it, then you’re going to have to think about investment options. First of all, you need to know that investment is risky. You’re not necessarily going to make back your money every time.
But, it’s a game that’s worth playing. Play it right, and you will always be building on your fortune. So, the first investment option that we want to talk about is the property one.
We’re talking about it first because it’s probably the most easiest to get into. First of all, you can go into properties abroad, which a lot of people are now choosing to do.
Once you’ve purchased an investment property, it’s all about making sure it’s perfect to rent out, and then getting the whole process of being able to rent it out started.
You should always make sure that you’re following the rules of the country that you would like to rent from.
There are certain laws you’re going to need to follow, and you can get into a lot of trouble if you try and avoid them! To make sure you’re getting enough custom, you need to make sure you’re showing your apartment as listed on multiple different websites.
You’ll most likely have to pay a fee for this, but at least it’s going to bring you in some custom.
The second investment option we have to talk about is something you can do from the comfort of your own home, and you don’t need such a big lump sum of money to start the investment. We’re talking about bitcoin, and there’s many reasons why you should consider investing in this area.
Despite what people might think, there is a way of making money through it. All you need to do is learn how to trade, and do your thing!
There are plenty of online tutorials that will walk you through the whole process. But essentially, it’s all about making sure that you’re buying and selling at the right time.
Sometimes, if you focus on what you’re spending your money on so much, and where it’s going at the end of every month, then you’re never going to be able to enjoy yourself.
Sometimes, if you have the money to do so, you’re best off just enjoying yourself. As they say, you’re only young once, and life is meant for living.
Take some time to go and see the world, or buy that car you’ve always wanted to buy, or take yourself on the shopping trip that you have badly needed for so long.
The more you treat yourself, the happier you’re going to feel. But the thing you need to make sure of is that you’re not getting carried away. I
t’s so easy to overspend, and it’s what most people tend to do when they have a lot of money in their bank. The last thing you would want is to go from riches to rags, so always watch your money.
This is just a final option that you could think of. A little side business on top of what you already do could help your finances just grow and grow. It doesn’t have to be anything that takes too much of your time, perhaps something so simple as a home business in arts and crafts.
As long as it’s something that you can grow, it’ll be something that you’ll enjoy. Plus, if things get a little too hectic and you find you can’t manage, you can always give up!
Be sensible, and do more with the money you’ve got, While you can!
Why It’s Important To Up Your Credit Score After Graduation
One would think getting and maintaining a good credit score ends with your education but life has a bigger plan for you as you realize you having a consistent credit score which is good, is important in your finances.
You’re young and probably have no use for loans right now but it is paramount that your financial credit score if very good as it makes it easier to get what you may need later on in life.
Getting a good job, taking loans from the banks/schools, having a home, negotiating for better interest rates, buying a car and many more, all require you to present a good credit score in order to enjoy these benefits.
…and it’s not too early to start…
What is a Credit Score?
A credit score is a single number that represents how dependable you are from the view of someone who would lend you money. Basically, you have to prove yourself as an individual with reliable financial history and this can be done by having a high credit
credit score can be known through credit reporting agencies, which are businesses whose job is to collect information about your financial behavior. They are most concerned about three major things which are:
- The money you’ve borrowed
- The amount of money you owe
- Whether you’ve been making your payments
What Do You Need A Good Credit Score For?
It’s easier to get a loan whether a mortgage loan, credit card, or an installment loan. Also, you tend to get a lower interest rate which a good credit score.
It can be easier to get (or keep) a job as some employers ask for and are allowed to check your credit scores. Any red flags in your credit history could potentially cost you your job.
It can help you launch your dreams into the entrepreneurial world as your personal credit history may be all you have to go on when you need to borrow money for a embryonic business.
These are some of the few reasons why you need a good credit score and history. Again, it’s never too late to start.
Have a lovely week ahead.
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