Life Skills that Should be taught in school – Financial Management

jessehendon

“To be or not to be, that is the question.” How about to be broke or not be broke? I’ve never in my life had to go back to the lessons of Shakespeare when making an important decision, but you bet your bottom dollar that I’ve had to know the basics of finance to live!

Financial management includes skills such as budgeting, saving, investing, and managing debt. I’m going to try and keep all of this fairly high level and we can deep dive each of these skills in a separate post. For now, let’s get tot he basics of Financial management skill that should be taught to children in schools.

  1. This is how you create your budget
    1. Know your income: Start by figuring out how much money you have coming in each month.  ALL OF IT.  
    2. Identify your fixed expenses: Monthly bills that don’t vary, such as rent or mortgage payments, car payments, and insurance premiums.
    3. Identify your variable expenses: Bills that can change from month to month, such as groceries, utilities, and entertainment (Watch this one closely).
    4. Track your spending: For a few weeks and then a few months, keep track of all the money you spend, ALL OF THE MONEY. This will help you see where your money is going and identify areas where you may be able to cut back (I’m looking at you fancy dinners & club nights!).
    5. Create a budget: Use the information you gathered to create a budget that outlines your income and expenses. Make sure to allocate enough money to cover your fixed expenses and to set aside money for savings.
      1. Set fun money aside in your budget.  Live your life, just don’t sacrifice your future!  Call it, My Fun Money.
    6. Stick to your budget: Once you have created a budget, try to stick to it as closely as possible. This requires discipline..
    7. Review your budget regularly: If it ain’t tracked, it doesn’t matter. 
  2. Saving – The process of setting aside a portion of your income for the future, rather than spending it all
    1. Open a checking and savings account with a bank that will also give you a free brokerage account
      1. From your budget, pay yourself.  Seriously, you always need to save a portion of your income for your future self.  Sacrifice other shit to do this if necessary.  I personally like to have my cash needs in checking, emergency reserves in savings or short term TBills (see brokerage account) and then all else in my brokerage account.
    2. Set financial goals: Identify what you want to save for, such as an emergency fund, a down payment on a house, a trip, a lifestyle, a car or retirement. Money, like everything else, requires a plan.
    3. Automate your savings: Set up automatic transfers from your checking account to a savings account & brokerage.  Stop yourself from forgetting.
    4. Cut expenses: Look for ways to reduce your expenses, such as by negotiating bills or shopping around for the best prices.
      1. It’s OK to negotiate, it’s money in your pocket or theirs.  
    5. Increase your income: Consider ways to increase your income, such as by asking for a raise at work or starting a side hustle.
      1. Know your worth and don’t be afraid to get more.
    6. Save your windfalls: When you receive unexpected money, such as a bonus or a tax refund, put it into savings rather than spending it.
    7. Avoid debt: Debt can be a major drain on your finances, so try to avoid taking on unnecessary debt whenever possible.  (See Below, not always bad)
  3. Investing – The act of putting money into financial assets or other resources with the expectation of earning a profit or growing your money in the future.  Before doing this, there’s a few things you need to know.  This is a VERY basic outline, we’ll deep dive these lessons in future posts.
    1. Risk Tolerance – Investing comes with the potential to lose.  You’ll hear it said, high risk, high return.  The flip side of this is high risk, lose it all!
      1. A very famous investor, Warren Buffet once said, “there are two rules to investing.  First, never lose money.  Second, never forget rule one!”
      2. How much risk are you willing to take?
    2. Choose your investments (Building your porfolio):   There are many different types of investments, including stocks, bonds, real estate, and small businesses.
      1. Stocks are bets on a company’s future success.
        1. There are two primary ways you can make money on this investment.
          1. Fellow investors believe this company will continue to do better and they’ll buy the stock, thus, increasing demand and lowering the supply available.  This will push the price up.
          2. The company you invest in pays back parts of it’s profits to shareholders (people who own the stock) in terms of a dividend and you can accumulate dividend payments over time.
        2. There are two primary ways to invest in stocks
          1. Bet on individual company’s
            1. If you believe a company is going to be successful in the future ie you see a bunch of your friends buying a certain company’s product – you can buy shares in that company
          2. Buy a bunch of stocks through index funds or mutual funds (ask your mother Jameson!)
            1. My recommended philosophy is buy the indexes.  The S&P 500 is a basket of 500 American stocks.  You are betting on the success of US Business.  As of January 2023, I think it’s still a good long term, set it and forget it bet!
        3. The Risk: You could lose your money if the value of the stock goes down.  If the company goes bankrupt, you could lose your total investment in that company.
      2. Bonds – Lending money to companies or governments
        1. Just like when you give put your money in a bank and gain interest, you can lend money to companies or governments for a set interest rate.
        2. Just like stocks, there are two primary ways to invest in bonds.
          1. Buy direct:  You can buy bonds from the government direct or you can buy company bonds through a brokerage account.  
          2. Through a basket of bonds through Exchange Traded Funds or managed Mutual Funds.
            1. This spreads your risk so you aren’t at the mercy of one company or government.
        3. The Risk: A company or government could “default” on their debt and you lose the money you lent to them
      3. Real Estate – Investing in real estate involves the purchase, ownership, management, or sale of real estate property for the purpose of generating a profit.  (I’m purposely keeping this simple for the blog post here!)
        1. There are several types of real estate investments, including residential properties (such as single-family homes and apartments), commercial properties (such as office buildings and retail spaces), and raw land. Each type of investment has its own set of risks and potential returns.
        2. There are 2 common ways to invest in real estate when you are getting started
          1. Buy a property and rent that property out for a dollar amount higher than your monthly expense to own and maintain
          2. Buy a property that you think could sell for more than you are buying it for, especially if you make improvements to the property.
        3. The Risk: You could be stuck holding onto and paying into a property that isn’t making money and losing you money
  4. Debt Management
    1. It’s inevitable that you are going to accumulate debt at some point in your life.  This could be student loans, car loans, mortgage, credit cards, etc… Here’s a few steps to manage that debt and hopefully, pay it off!
      1. Make a list of your debts: Gather all of your bills and statements and make a list of your debts, including who you owe, interest rates, and minimum monthly payment for each debt.
      2. Prioritize your debts: Consider which debts are most important to pay off first. For example, you may want to focus on high-interest debts or debts with late fees first.
      3. Create a budget: A budget can help you understand your income and expenses and identify areas where you may be able to cut back on spending. Use your budget to allocate funds towards paying off your debts.  Of course, remember savings, pay yourself first!
      4. Make more than the minimum payment: Pay more than the minimum payment on your debts each month, if possible, pay it all off! This can help you pay off your debts more quickly and save on interest.

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