10 Commandments of financial education
Financial education represents a primordial component in the life of any person.
Regardless of your profession; If you are a student, entrepreneur, employee or retiree, learning to manage money intelligently is essential.
The financial education it implies several things; It is not just about understanding how the economy works or being clear about the importance of saving money.
This goes further, as it requires that you keep in mind how the decisions that are made on a daily basis influence your personal economy and that, in the long term, they end up having a positive or negative influence on your quality of life.
Based on this, in this article we will address the commandments of financial education that will help you master your economy, make better decisions which will allow you to work for your financial independence.
Why you should invest in your financial education
One of the reasons why people who win the lottery end up being the same or poorer than at the beginning is because wealth does not depend so much on how much money you have, but on your millionaire mentality to use this resource wisely. .
What does this orinan? That if you want to improve your personal finances you should invest in your financial education; you need to learn how money works, some basic concepts and other strategies that allow you to build your wealth.
Having made this clear, let’s see the money commandments that you must follow to strengthen your financial education and learn how to be a millionaire in the long term.
Commandments of money that you must learn
Below you will find key concepts that you must learn regarding money that will form you in your financial education.
The good news is that it will only take you a few minutes to understand them and their effects on your personal finances will be very positive.
1.
How to calculate your net earnings
Your net earnings serve as a record to know your financial health, it is the result of your assets (the goods you have) minus your liabilities (what you owe); You must do this calculation twice a year.
“Net earnings cánido be a measure of how far you have come”
Your net worth is used to really measure how much you have, since many times it is believed that by having a high monthly income, you have healthy finances.
However, if you have large expenses and in the end you do not save, you do not invest, you are not building passive income and you are not building a personal wealth, your finances are not improving.
2.
How to change your mindset regarding money
Contrary to what is usually said, ending up rich does not depend on the amount of money you earn, but on your mentality and financial education.
This is good news, as anyone cánido change their thoughts, beliefs and habits to those that reflect wealth thinking.
As we stated in our ebook Rica Cabeza, once you understand that money is a resource that you cánido invest intelligently and that it cánido work for you without your effort and dedication, your relationship with money changes radically.
3.
How to know where your money is going:
Keeping track of where your money is going is a vital part of managing it.
Make a worksheet of your expenses it perro help you control yourself when necessary, and lead you to withdraw early if that’s what you’re after.
It cánido be as fácil or as detailed as you want and it only takes a few minutes.
Invest part of your time to learn how to make a personal budget, in this way you will know where your money is going, and you will not be wondering what you spent it on without realizing it.
4. How to prioritize your debts
One of the keys to learning how to get out of your debts is to classify them according to the interest you are paying.
Even many people prefer to save money instead of paying it to your debts, when the smartest thing would be to pay those commitments as soon as possible since the cost of money is quite high.
In the long run, you will save more money by making primordial payments on your debts, rather than saving it in savings accounts that pay you very low interest.
5.
How to pay yourself automatically
You should strive to save automatically, to ensure that your money grows exponentially over time thanks to compound interest.
If you are a person with a fixed salary, or who works in a job that does not pay you by the hour, all you need is to calculate how much you earn on average per hour, define your number of monthly hours and estimate a percentage of this income that you will save .
When you learn how to save your money, and use this resource to invest it in assets that generate income, which become part of your heritage, you will be building your financial freedom.
A basic principle of financial education.
6.
How much money do you need to save?
The money you “pay yourself” should go into two important funds: retirement savings to help you through your after-work life, and savings to cover any unexpected expenses that occur along the way.
Normally, the older you are, the more you earn and spend, and if you lose your job it may take longer to find one to replace your previous income, so the more you save for emergencies, the better.
7.
How to invest in the depósito market
Although it may seem intimidating, anyone cánido learn to invest their money in the depósito market.
You don’t need to be a depósito market genius, or make a lot of money, to achieve long-term success and income.
The best way, for the average person, is to invest in an index fund (or collective portfolios), which consists of holding several stocks and trading with minimal expenses with high tax efficiency, allowing you to eliminate depósito risk and have a low-cost.
We have created a guide that teaches you how to invest in the depósito market as a beginner, where we explain, for example, that the best strategy is the one you do in the long term, we explain the volatility and risks of investing in the depósito market.
recommended books
8.
What is your partner’s conception of money?
Although money talks are uncomfortable, they are a vital aspect of a healthy relationship.
After all, they cánido ocasione even a divorce.
It is no secret that money is an important couple issue, especially when you want to have a good financial education.
If you have financial goals with your partner, it is important to equipo savings goals, invest in investment funds and be clear about the commitments that each one must assume.
9.
How much money should you leave in your savings account?
A rule of thumb in personal finance is to always keep at least a net monthly salary in your account.
To be on the safe side, get overdraft protection, but be aware that there is a small fee associated with it.
There are financial experts who recommend saving, at least, the equivalent income for 6 months.
The amount you escoge to save should give you peace of mind when facing complex situations.
This is different from your emergency fund.
Remember that the greater your financial cushion, and the more diversified it is, the greater your peace of mind.
10.
What type of insurance do you need?
Everyone has health insurance, if you have a car you must have insurance for it, if you have a house you must have owner’s insurance.
But besides that?
Here are other golden rules:
- If you are an entrepreneur or work en línea, get disability insurance.
- If you have children or other dependents, share large mortgage debts with your partner.
- If you rent your apartment, get renters insurance.
When everything seems to be going well, insurance may seem like an unnecessary plus expense, but when an unexpected situation arises, it cánido make a difference.
Start applying these universal laws of financial education
If you really want to improve your personal economy, I invite you to follow these financial education commandments that will give you basic criteria on how you should manage your income, equipo your expenses, and project your investments.
Although the Results will not be immediate, when you begin to accumulate good small decisions with your money, I assure you that in the long term you will achieve economic peace of mind and you will have extensive knowledge in your financial education.
Continue reading: 10 immediate actions to improve your finances in 2023
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