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Think Critically. Personal Finance is Personal. Do What’s Right for You.

What stocks should I invest in? Why do I need to have 30% of my assets in bonds? What is the optimal saving rate for retiring in 10 years? Why should I not invest in silver? Are Roth IRA’s better than Traditional IRAs? Should I draw down on my HELOC for investments? Why am I being shamed for spending my money on avocado toast??

When learning about personal finance, there are so many different questions to ask, thoughts to think, and concepts to learn.

It’s Financial Literacy Month and this post is a continuation of our Financial Literacy series here in April on The Mastermind Within. The last post talked about why financial literacy is important. 

Today, I will sharing with you why it’s crucial to think critically about your finances, and realize personal finance is personal.

Personal finance is not about what your friends are doing with their money. It’s not about what your siblings are doing with their money. It’s not what I or some other blogger is doing with their money.

In this post, I will be discussing a mindset which you can apply to most things in life, but in particular, apply it to personal finance for your own financial journey.

Personal Finance is Personal

personal finance is personalI’ve made a few mistakes in my life. One of the first financial mistake for me was when I got my first real paycheck.

I had just signed up for a 401(k) account.

I was Googling online, what should I invest in and how much should I put into my 401(k)?

“80% stocks, 20% bonds for a 23 year old? That’s a good one, right?”

After that first paycheck, I had $22 in bonds.

….

What was I doing???

I was 22 – did I need to protect my portfolio with some bonds? Better yet, should I have even been investing anything, and instead looked to pay down debt? Should I have put that $100 towards something else?

What did I want in life? What were my goals? I didn’t know the answers to any of these questions, and yet I was making a financial decision with my hard earned cash.

Start with Why

Financial experts give advice which should work for the majority of people: pay yourself first, pay down your debt, invest in stocks and bonds, work for 40 years, and retire a millionaire. That’s how the story usually goes.

Historically, this has worked and the majority of this will continue to work going forward.

However, once you start to look at your financial situation, a whole new set of questions come up: “should I pay down debt or invest? Which debt should I pay down first? What is the best investment? How should I spend my money?”

You are on the right path: thinking critically and not just going with the first thing you read probably is a good idea.

Think Critically

Before starting to think about the answers for these finance questions, it’s important to turn inwards and look to first figure out what is important to you and your life.

Do you enjoy eating out? Do you enjoy nights out on the town? What about sporting events or playing on different city teams? Do you enjoy traveling?

What would your ideal life look like?

These are all fairly difficult questions – I don’t even know what makes me happiest even after thinking about it for the last few months and honestly, it seems my answer changes each and every day.

One thing I do know is I want to be wealthy so that when I do figure out what makes me happiest, I can spend my time doing that, and not have to worry about money.

I also want to be able to fully support my family – both the family I came from and the family I plan to start in the future. I want to make my world so big that everyone can come along for the ride and enjoy life stress-free.

These are my “whys” for getting my financial house in order and it’s because I thought critically, and realized that wealth won’t make me happy on its’ own… I need to have a why.

Do What’s Best for You

Personal finance is personal – it’s your money after all.

What are your goals? Do you want to retire in 10 years? Are you fine working for 40 years? What kind of lifestyle do you want?

You can do anything you want with your life.

Part of my mission writing here on The Mastermind Within is to look to influence your mind and help you get to the next level in your life.

Start with your why, and start with your mindset. This is so key to success in anything.

When looking to figure out what to do with your money, remember, it’s YOUR money.

It’s your hard earned cash.

You put in the hours for it – spend it on what you want to spend it on.

Figure out what’s best for you, and put your plan into action.

Conclusion

Personal finance is just that, personal. Personal finance is not about what your friends are doing with their money, what your parents are doing their money, or what some celebrity is doing with their money.

Personal finance is the science and application of how you earn, spend, save, track, invest, and build your wealth over time. It’s personal – taking control of your finances is on you.

By starting with why, and figuring out what you want to do in life, you will be able to improve your financial situation.

It’s so simple, and yet so many people don’t actually put in the time to first ask themselves the right questions and then put their plan into action through tracking your financial progress each month – be that through budgeting, saving X% a month, or paying down debts for the future.

Think critically, realize personal finance is personal, and do what’s best for you. That’s all I can ask.

Readers: I’d like you to assess where you are at financially. What is your dream? Do you already know what you want? How far along on your path to financial success are you? What kind of lifestyle do you want to live each and every day? Are your financial habits and actions in alignment with your goals?

Erik

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Why Financial Literacy is Important

“Let’s go out to eat!!!”

I had just played in a college kickball tournament on a Sunday afternoon and the team was hungry.

“Sounds good, where are we going?”

“How about Potbelly’s? It’s close and a lot of us really enjoy it.”

“Okay, I’ll join – but I don’t think I’ll eat and get something at home.”

It was sophomore year, and I only had $50 in my bank account. After paying for my Spring tuition and making some dumb decisions, I was down to my last dollars.

There was no way I could justify spending $10 at dinner when I had a meal plan and other bills to pay.

I sat there in the booth at the restaurant while I saw all of my friends and fellow teammates eating their fun sandwiches and shakes.

I swore to myself that day I wasn’t going to ever put myself in that situation again. It was that day, 7 years ago, when I told myself, “Erik, you are going to become financially literate, and you are going to have savings and be able to afford fun if/when it comes up.”

Since that point, I’ve read many personal finance books and blogs, talked with many personal finance experts, and gotten my financial house in order.

Now, I’m here to share with you some finance tips this month to help you get out of debt, build wealth, and get your financial house in order.

Welcome to Financial Literacy Month!

April is Financial Literacy Month in the United States, and on this site, The Mastermind Within, I’m embracing this and bringing to you targeted information on personal finance, ALL MONTH.

Last week, I gave you a little preview into the type of content you will read this month in my article What Makes You Happiest and Why Money Matters.

In this post, I will be sharing with you why financial literacy matters and why you should care about getting your financial house in order.

The Current Financial Situation of the Average American

Back in 2015, a research team at Wharton published a paper called The Economic Important of Financial Literacy: Theory and Evidence.

In it, they propose and show that there are 3 main questions that can show a person’s level of financial literacy:

  1. Suppose you had $100 in a savings account and the interest rate was 2% per year. After five years, how much do you think you would have in the account if you left the money to grow?
    • More than $102
    • Exactly $102
    • Less than $102
  1. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, how much would you be able to buy with the money in this account?
    • More than today
    • Exactly the same
    • Less than today
  1. Is this statement True or False? Buying a single company’s stock usually provides a safer return than a stock mutual fund.
    • True
    • False

How did you do?

In the paper, only 34% of participants were able to answer all 3 correct. (The correct answers are more than $102, less than today, and false).

These questions are tricky, but with some financial literacy, these shouldn’t be too tough to answer correctly.

Diving into Some More Statistics

Here are a number of other statistics on personal finance:

All of these numbers lead to the conclusion that on average, Americans don’t understand how to manage their money.

Are people spending more money because they are stressed? Is this the millennial mindset of spend today and push off tomorrow in play? Has depressed income growth and increased inflation crushed any opportunity to save?

I’m not smart enough to answer any of these questions, but I’m feeling inspired to improve my personal situation (and I hope you are too.)

In 2017, I saved nearly 50% of my income and this year, I’m saving at roughly about the same clip. I want you to be able to save money for the future as well.

Let’s change this – it’s time to get our financial houses in order!

Why Financial Literacy is Important

why financial literacy is importantMy money epiphany happened in college as I shared with you in the introduction of this article.

Maybe you’ve had a similar money epiphany, or maybe not.

Unfortunately, it’s a sad place to be.

With bills to pay, mouths to feed, and fun to have, not having the cash or means to do what you want when you want is painful and uncomfortable.

Financial literacy is important because without it, we can get into a lot of trouble with credit card debt, not having an emergency fund, or simply not being able to do what we want with our time!

With financial literacy, we can start to build wealth for the future, get ahead in life, and be able to do whatever we want with our time and money.

I live with an abundance mindset, and as a result, my take on financial literacy will not be so much on frugal tips and how to cut costs. While I believe these are important subjects, I’m naturally frugal and cheap, so I don’t have too much direct experience in this area.

Instead, I will be sharing with you how I’ve escaped my own financial prisons through simple living, increasing my income, tracking my income and expenses, and building wealth month by month.

There is so much money in this world – all you have to go do is just get a little bit of it and you can be wealthy.

Conclusion

Let’s get our financial houses in order together this month. There are certainly areas of improvement that I can work on, and I will be sharing with you what steps I’m taking to get better with my finances…

It will be raw and transparent – I’m a little bit uncomfortable just thinking about sharing with you my information.

But, because we all know that true results and learning comes from the raw details, it is necessary.

I’m very excited to join you on your journey, and I hope this Financial Literacy series this April helps inspire you to crush your debt, build wealth for the future, and become a financial expert!

Readers: have you ever had a money epiphany? Did you say to yourself something like, I’m never going to be in that situation again? What area of personal finance do you need help with?

Erik

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