investing

Mar

2023

Signs That You Are Ready to Invest

Reading Time: 3 minutes

You are tired of working for money. And you have finally decided to slowly accumulate assets and build your wealth. The question now is are you ready to invest? Here are signs that you are ready to invest:

Investment Prerequisites

Before you enter the world of investing, there are certain conditions that you must meet first:

1. Pay off all your bad debts first

It is highly recommended that you pay off all debts first, most especially the bad debts, if you have any. It does not make sense to invest and earn when the interest that you are paying for your bad debts is higher than the interest that you are earning from your investments.

So, how to know if a debt is considered good or bad?

A good debt is money that you owe to help you generate income. Examples of good debts are debts used to finance your education, business or real estate for rentals.

A bad debt on the other hand, is a debt used to purchase depreciating assets or things that decline in value over time. Examples of bad debts are consumer loans and credit card debts. You need to get rid of your credit card debt first if you have them because out of all the bad debts, they charge you the highest interest rates.

2. Make sure you have adequate cash in your emergency fund.

You should always have enough cash in your emergency fund. Your emergency fund is money set aside for financial surprises in life such as loss of a job, home improvement, car repair or trip to the dentist. The Rule of thumb is that your savings account should be equal to six months of your monthly expenses. Anything in excess of that, you can use for your investments.

3. Make sure you have adequate insurance.

An insurance is your protection for a possible unpleasant and unexpected event that might or might not happen in the future.Thus, you need your insurance to protect your life and your properties and your ability to earn income.

Here are some insurances available in the market today:

Health insurance to pay for your medical bills if you get sick
Life insurance to protect your loved ones just in case something happens to you
Property insurance for your home and vehicle
Disability insurance especially if you are the breadwinner
Travel insurance if you are traveling abroad.

Choose one depending on your needs.

4. Define your financial goals

You need to identify your financial goals or targets. Make them specific and measurable. What are you going to do with the money? When do you need it? How much do you need?

5. Know your investment risk appetite.

Investment risk appetite refers to how much risk you can handle. In investing, the higher the risk, the higher the return. Your emotional tolerance should be able to handle the rise and fall of your investments.

6. Think long term.

Always remember that the purpose of investing is to help you accumulate wealth over time. Long-term investments mean a period of one year or longer. If you are going to be needing the money in a few months time, you are better off just leaving them in your savings account.

7. Understand your investment options.

There are many investment vehicles to choose from. Don’t just jump into investing without having a basic understanding of your chosen investment vehicle. Read a lot and know your options. Choose something that fits your goal, personality and level of involvement. Be careful of investment scams.

If you have satisfied all requirements, then congratulations, you are now ready to make your first investment. Good luck!

First published in Pinoy Smart Living on 12.02.2019.

Feature Image by WOKANDAPIX from Pixabay

Mar

2023

“Rich Dad, Poor Dad” and Your Money Mindset

Reading Time: 5 minutes

Have you read the book Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money — That the Poor and Middle Class Do Not! written by Robert T. Kiyosaki? This should definitely be on your list of books to read and learn from to improve your money mindset.

This book shows us a solution to getting out of the Rat Race, which Kiyosaki defines as a situation where people “work for the owners of their company, for the government paying taxes, and for the bank paying off mortgage and credit cards.” This scenario sums up most of our parents’ and our lifestyle in our 9-5 jobs. Kiyosaki proposes that we learn and practice investing as a solution to get out of this trap, retire early and live wealthier lives.

The book is full of great advise and real-life examples from the author’s own experience on how to go about investing. I will not be providing a summary of the lessons here. I think you should read the book yourself to get the full learning experience.

However, I will share some of the concepts in the book that had a great effect on me as it challenged a lot of my ideas about money and how to get rich. This book will definitely help you in transforming your money mindset into a wealth mindset.

Assets First, Luxuries Last

Most of us think that our homes are our greatest assets. Kiyosaki points out that this is the wrong way to think about assets. Assets are the things that generate income for you. If it doesn’t generate income for you, then it is a liability.

Assets include a business that generates income, an apartment that you have for rental or a car that you also lease out.

When you acquire a house or a car, unless you have them rented, these do not generate income for you. Instead, you spend more on them because you have to pay the mortgage and taxes that come with your purchase of the house or car. Thus, both of these items can be considered luxuries and you should only acquire luxuries when you have generated enough income from your assets to cover the expense of owning these items.

Pay Yourself First

Kiyosaki also stresses the concept of paying yourself first. This is an important aspects of having a good money mindset. You should have a budget for Financial Freedom and Savings. These are the portions of your budget that you should prioritize. Of course you should aim to be able to pay all your bills on time, but if money is short, you should prioritize paying yourself first.

He states that you are your greatest asset, especially your brain and body. So you should take care of your health and continue to educate yourself in order to maximize your knowledge and skills to pursue your goals. I could not agree more.

Most of us focus on working hard to gain wealth forgetting to take care of our health. In the end, we may succeed in acquiring wealth but we end up spending that on hospital bills to recover from our health issues instead of being able to enjoy our wealth for our goals such as buying a house, travel, running our own business, etc.

Always Look for Opportunities and Act on Them

Kiyosaki also advises that even when things look bad, you should always look for opportunities to turn around the situation. The way to do this is to use your creativity to think of solutions on the best way to handle the situation. This is how someone with a good money mindset will approach a seemingly negative financial situation.

A classic example is, if you feel you are not earning enough and you want to have your own business. You shouldn’t wait until you have saved enough to quit your job and start your business. Instead, keep your job, keep saving for your business and start it on the side while you are earning from your day job. This can be done more easily now with the rise of online platforms to start your online business.

The goal is to look for opportunities to earn more income without incurring major risks. If you quit your job to start your business, you will not have another source of income if the business venture fails or if it needs to be funded with more money. Most of us would commonly try to get a loan to fund a business but Kiyosaki discourages this.

Start Early, Learn Along the Way

One of the best advise in the book which I wished I had learned when I was young was to start early. Most of us already know that we should start saving for our retirement early. But we often do not think of investing early. Instead, what most of us do is start acquiring credit card debt or loans early on in our careers.

By starting early, he suggests not only learning to save early but investing in yourself early as well by taking classes that may not be useful in your main profession but will be useful to you when you start investing and start your own business.

By learning, he doesn’t only mean thru books but also seminars, classes as well as actually taking jobs and from mentors that would help you learn business skills such as in sales or marketing or how to work with and manage other people. These are all skills that you will need in order to work smarter, not harder and they will be useful when you finally start your own business.

Don’t Forget to Give

Kiyosaki encourages us to be greedy in our pursuit of building wealth but he does not mean doing so without taking into consideration our relationships with people in the process. That’s why he encourages that employers should get the best people to help them run their business and pay them what they deserve instead of focusing on how to cut costs. He shares that when his staff get a big paycheck, he feels happy because it means that his business is going to get big profits too.

He also encourages giving without the thought of getting something back. That’s why so many rich people make it a habit to contribute to their favorite charities or have created charitable institutions of their own. Being able to help others is a big part of having a good money mindset.

A simple form of this is to share your knowledge with other people. It is a great feeling when someone you shared your knowledge with comes back to you and tells you how it improved their life. In the process, you also gain new friends and expand your network for future opportunities.

It’s Never Too Late

This being said, it is not too late to start learning and investing and looking for opportunities to build your wealth. Kiyosaki provides several examples of people who started building their success after they have retired or after losing much of what assets they previously had.

As long as you have an open-mind, are willing to keep learning and are bold enough to go after opportunities as they come, then you will always spot opportunities to build your wealth. In the process you will keep honing your money mindset until you acquire a wealth mindset. The key word here is to build gradually instead of indulging in get-rich-overnight schemes. It may happen to a lucky few but it may not happen to you, so its better to do it slowly but surely as long as you keep on doing it.

Learn, earn, learn some more, earn some more. That’s how Kiyosaki did it since his younger years. He was lucky to have a rich dad and a poor dad who showed him contrasting beliefs and attitudes about money and wealth and he was able to learn from them. Now, we are lucky that he has provided us the chance to learn what he has learned and it is a great opportunity that we should not pass up.

Go and get the book yourself and start reading. I will be reading it again to see what nuggets I can learn that I missed before.

Updated. First published on Pinoy Smart Living as “Thoughts After Reading Rich Dad, Poor Dad” on 2018.07.31.

Feature Image: Original Photo by Joshua Mayo on Unsplash.

Sep

2022

5 Investments You Can Start Right Now

Reading Time: 3 minutes

If we want to improve our financial life, one of the things that we should aim for is to have an investment fund in our monthly budget. Ideally, you should start investing one you are debt-free. But if you plan things right; then you can do both. So once you pay off your debts; you will be able to appreciate your investment rewards even more. That said, here are 5 investments you can start right now so you can let your money work for you.

1. Real Estate

Real estate properties are always a necessary commodity especially in developing areas. This investment vehicle has a predictable money flow so it is easier to understand than other investment options. Aside from providing income from rentals, it also allows you to enjoy tax benefits and even inflation protection. Real estate values continue to rise especially in economic zones. If your timing is right, you can buy property at a location that is still being developed so you can enjoy higher value as the area become more commercially busy. You can also enjoy high returns on your initial investment when the property goes up for sale.

2. Virtual Assets

Virtual assets are digital assets that you can invest in. You must have already heard of the term cryptocurrency, and most recently it’s offshoot NFT. Cryptocurrency such as bitcoin and others, is a virtual asset that functions similar to traditional currency or fiat. However, unlike traditional currency, you don’t need to go through banks to transact using cryptocurrency. One more advantage of cryptocurrency is that it does not expire unlike vouchers or gift cards and since it is virtual, there will be no fraud or tampering. The cryptocurrency that you have in your digital wallet will always be yours and you can readily exchange it for fiat currency whenever you want.

3. Fast Food Chains

Just like real estate, food will never lose its value so large fast food chains are always a good investment vehicle. There are many well-known fast food restaurants locally and abroad that you can choose from. Of course, it’s good to support your local businesses first so you can help your country’s economy grow. Most of us also have favorite cafe that we go to just to meet-up and to work as well. So why not invest in them too? That means you earn even as you continue to patronize their different branches. It’s like you own a piece of the company you like to visit anyway. Of course, you can do this by investing in the company’s stocks; so start to learn about the stock market so you can invest more confidently. There are other company’s in different industries that you can invest in too.

4. Stock Options

Investing in the stock market is a long-term plan but you can enjoy high rewards for short-term investing through stock options. Start by learning about the difference between stocks and stock options. Stock options are “contracts that allow the investor to buy or sell shares of stocks at a predetermined date, at an agreed upon price. Although investors have the right, they are not obligated in any way to buy or sell the shares.” Get yourself familiar with how you can earn through stock options. Some people end up doing stock options instead of trading in stocks for many reasons.

5. Your Own Business

If you have always wanted to start your own business, then why not consider investing in it? If you are suffering from a toxic work place; then you might want to use your savings to put up a home-based business. A lot of people have started their business from a hobby that they are passionate about. Some have even started different businesses alone or with friends and family. In the end, they settled for the one that fulfilled their sense of purpose and continue to work on growing their brand. Start putting pen to paper and start planning your business. There are many apps to help you grow your business until you can assemble your own dream team to help you.

Investments always have their risks and rewards. So be sure to study each one carefully so you reduce the risk of losing your money. Also, it is always good to not put your eggs in one basket. So as you learn one investment vehicle and invest in it; continue to learn about others and invest there too. This way, even if one investment fails, there will be other streams of income that you can rely on.

Feature Image: Original Photo by Mikhail Nilov on Pexels.

Aug

2021

What is Your Money Personality?

Reading Time: 4 minutes

Your money personality simply means your attitude and behavior towards money. It is a reflection of your beliefs about money. Knowing and understanding your money personality will help you improve your financial life. It will help you spend, save, invest and grow your money wisely. So, what is your money personality?

There are five kinds of money personalities. Each one has different outlooks on how they handle money. It is possible to be a mixture of one or two personalities.

1.The Big Spender

As the name suggests, the big spender is someone who places value in their possessions. It is easy to spot one. Just take a look at the possessions that they own. Do they have the latest smartphone or gadget? Are they always wearing branded clothing? Do they have high-end vehicles? How big is their home? Do they own the latest and biggest television?These people are so comfortable spending money that they don’t care even if they end up in credit card debts.

If you are a big spender, make sure that what you are spending falls within your budget. If not, learn the art of delayed gratification. It is also important that you understand how credit cards work. Otherwise, a big spender is in great danger of falling into financial distress.

If you can’t buy it twice, you can’t afford it.
– Jay Z

2. The Savers

The savers are exactly the opposite of the big spenders. Savers shop only when necessary and they hardly ever use their credit cards. They generally have no debts. They are the cheapskates. If you know someone who tries to avoid paying and does not want to share expenses, then they are the savers. Unlike the big spender who derives satisfaction from the possessions that they own, the savers get theirs from looking at their bank accounts.

If you are a saver, congratulate yourself. It means you are already careful and aware of your finances. Chances are, you already have your emergency fund and probably a bit of retirement fund as well. However, money psychologists advise that you should also learn to allow yourself to enjoy your hard-earned money. In the same way, you should also learn to share your money with others. The money jar budgeting system allocates at least 10% for play and another 10% for title.

3.The Security Seeker

The security seekers are careful planners. They research every option available before they start spending their money. However, unlike the savers, security seekers are willing to spend as long as they have the budget for it. They make sure that they have enough money to pay for the expenses before swiping their card or going on vacation. The downside is that sometimes, because of too much research; they end up not making the decision at all.

If you are a security seeker, it is best to lessen too much pessimism and anxiety over financial decisions. Be aware that life is all about choices. The key is to know your financial goals and make decisions towards the attainment of those goals. Yes, there will be better opportunities that may arise in time but be comforted in the fact that you already did due diligence. Your decision is the best decision at that point in time.

4. The Avoider

The avoider is someone who avoids thinking and talking about money. Avoiders are those people who have an untouched stack of bills lying in the counter. They don’t want to face their finances. They don’t take note of the due dates of their credit cards and bills.

If you are an avoider, it is best to start caring about your finances. Let’s face it, whether you like it or not; money is a big part of our lives. We need money in order to survive in this world. The first thing to do is to track your expenses. You will not be able to improve your financial life if you don’t know where your money is going. From there, you will be able to set up a plan going forward.

5. The Moneymaker

The moneymaker is someone who already perfected the skills of creating wealth. They spend most of their time and energy earning money. They believe that money is the key to happiness.

If you are a moneymaker, you have probably achieved financial freedom. You have enough money in the bank to live comfortably for life. However, do realize that although money is important; relationships are far more important than money. Because you were always busy creating wealth, you might have neglected important relationships. Now is the time to slow down and reestablish a deeper relationship with your family and loved ones.

6.The Gambler

The gambler is someone who loves taking risks. They get satisfaction from the thrill of risk with the promise of high rewards. They invest in anything that they think will give them high returns. Most of the time, they don’t even do their research anymore before investing. These are also the same people who are in danger of being addicted to gambling.

If you are a gambler before you start losing all your money; it is best to first understand the rules of investing. Be strict on where you invest your money before you make big financial decisions. And avoid borrowing money just to enter an investment that you do not even understand. Learn to guard your money.

The bottom line, understand your money personality and find a way to balance the personalities in order to help you achieve your money goals.

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Aug

2021

How to Spot Investment Scams

Reading Time: 3 minutes

The only way to grow your money is through investment. Leaving your money in a regular savings account is never enough because of the low interest rate. More often, inflation will take the value of your hard earned savings. But where do you invest your money? There are many types of investments available out there depending on your age, goal, time horizon and risk appetite. While there are legitimate ones, there are also some which are fraudulent in nature. As an investor, it is important that you know how to spot investment scams.

1. Low or No Risk, High Return

If someone offers you an investment that is low risk yet offers high returns, you are most probably getting scammed. Investing is all about risk. Whether you are buying bonds, funds, stocks, stock option, real estate, antique or any other kind of investment; there is always risk involved. The same is true when you are opening a business.

The general rule of investment is that the higher the risk, the higher the potential return. If the investment being offered to you defies this rule, then it is a scam. These kinds of investments are what you call phantom riches. It simply means that they are dangling the prospect of wealth, knowing full wealth that it is something that you want but can’t have.

Always remember, “If it is too good to be true, it is too good to be true.”

2. High Pressure Sales Tactics

Avoid being rushed. Example high pressure sales tactics include:

Limited Time Offers
Available Only to First Few investors
Invest Today and Get Credits

Although high pressure sales tactics are considered legitimate marketing strategies, scammers used this primarily as their persuasion technique. Their goal is to have you commit to the investment right away so that you will have no time to do your research or change your mind. Never entertain those that give you pressures or force you to make a quick decision.

If you are going to invest your hard earned money, you need to have ample time to think about it and do your research. It is one of the investing rules from The Richest Man in Babylon. Know what you are getting yourself into. Yes, do your research even if the one offering you is a close friend or family.

3. Unsolicited Approaches

If they just contacted you out of the blue; chances are it is a scam. How did you learn about the investment? If you learned about it through a phone call, email or text message from someone you don’t know; Some of them will even ring your doorbell. This is what you call cold calling. Their intention is to sell something or make you invest in something. Although it is not illegal, it is best to be wary of them.

If ever you receive an offer, get the following details:

Full name of the person
Company name and address
Telephone number preferably landline not a cellular number

Do not deal with them if they seem hesitant to give their information. Once you get all these details, hang up. Tell them that you think about it and that you will be the one to call them back. Then do your research. Make sure that the company is duly-registered. It is best also to check if the type of investment is regulated by the government.

4. Requirement of Getting New Participants

Multilevel marketing is a sales strategy wherein distributors are encouraged to recruit new distributors. Many big companies use this as their marketing strategy. Although it is legitimate, it is also very controversial. Many people have been scammed with pyramid schemes. How to spot the legitimate ones from not? Simple, the legitimate ones focus on product sales while the scammers focus on recruitment of new members. If the earnings are dependent on how many people you can recruit, then stay away from it. It is a pyramid scam.

Do not invest in something that you are not familiar with. Do your research first. Take your time. And soon, you will find a legitimate investment vehicle that fits your financial goals.

Feauture Photo by Anna Tarazevich from Pexels

Jul

2021

Investing Rules from The Richest Man in Babylon

Reading Time: 4 minutes

All your life you have been working for money. But did you know that it can be the other way around? Yes, you can make money work for you instead. In order to do this, you need to learn to invest your money. However, investing your money is not as easy as it sounds. There are certain rules that govern investing. In ancient times, the residents of the city of Babylon understood this. They appreciated the value of money and applied some wealth rules. Thus, the city of Babylon was the wealthiest city in the world during that time. So, how to build personal wealth? What are the investing rules from The Richest Man in Babylon?

Best-selling author George Clason narrated the teachings of Arkad, the richest man in ancient Babylon in his book The Richest Man in Babylon. The story is filled with ancient yet timeless wisdom and knowledge. The book contains practical lessons and advice that can still be applicable even in this modern world.

Here are the the investing rules from the Richest Man in Babylon coined as the Five Laws of Gold:

1. Save 10% of Income.

Gold cometh gladly and in increasing quantity to any man who will put by not less than one-tenth of his earnings to create an estate for his future and that of his family.

This is the first step in the road towards financial freedom. That is to save 10% of income. This money will serve as the seed of your money tree. Consistency is the key. By consistently setting aside 10% of your income, you are slowly building your wealth.

Those who do not save will forever find themselves in the rat race, living from paycheck to paycheck. The key is to spend less than you earn. Many people save what is left after expenses. That should not be the case. Rather, as soon as you receive your income, you should automatically set aside 10% for savings first.

2. Invest Your Money

Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field.

The second step is to invest your money. Putting your money under your bed or depositing it on a regular savings account is never a good idea because of inflation. Your money will soon lose its value over time. It is only through investing will you be able to take advantage of the power of compound interest and make money for you instead of you working for money.

There are many investment vehicles available out there. Choose one that will best suit your interest and risk tolerance. You can choose from bonds, funds, stocks, stock options, cryptocurrencies. Fixed properties such as real estate or movable properties such as jewelries, antique and vintage items, artworks and luxury watches are also good options. You can even start your own business.

3. Seek Expert Advice / Have a Mentor

Gold Clingeth to the protection of the cautious owner who invests it under the advise of men wise in its handling.

Who do you ask for advice? This is one area where most people fail, especially when it comes to money. People have the tendency to ask for money advice from people they are familiar and comfortable with. However, that should not be the case. Instead of asking someone that you are comfortable with, learn to seek the advice of financial experts.

Have a mentor. A mentor is someone who has already achieved your goals. For example, you want to learn how to play tennis. Will you get a coach who does not know how to play the sports? Of course not! Another example is if you are failing math in class, will you hire an English tutor to teach you math? It is the same way in life, seek the advice of experts. Be choosy when finding a mentor. Do not ask a friend who is broke for money advice.

4. Only Invest on Something That You Are Familiar With

Gold slippery away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keep.

Have you heard of stories of people losing all their investments? Yes, it happens. It is possible to lose all your hard-earned money if you are going to invest on something that you are not familiar with.

This fourth rule of the laws of gold takes investing to the next level. It implies that it is not enough to simply ask advice from other people. It also entails the investors to know, learn and understand what they are getting into. Don’t just blindly trust others. Do your homework too. Study the market. Do research. Enroll in classes. In short, learn, learn, learn.

5. Do Due Diligence

Gold flees the man who would force it to impossible earnings or who followeth the alluring advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment.

Due diligence means investigating, reviewing and checking the facts. Many people lost a lot of money because they did not bother doing a background check on the seller and the investment. For example, in real estate investing, research first before buying a property. Verify the deed on the land registration bureau. Bring an engineer or architect to inspect the property for any unseen damage. Check the surrounding community if it is a safe environment. Ensure that it is not a flood zone. Talk to the neighbors for a brief history or stories of the house. This is what due diligence is all about.

And always remember before you invest in anything, if something is too good to be true, chances are it is. Don’t let others fool you.

Apply the investing rules from the Richest Man in Babylon and soon you will be on your way to building your personal wealth.

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Jun

2021

Use The Power of Compound Interest to Get Rich

Reading Time: 3 minutes

Have you ever been to any of the seven wonders of the world? They are so-called the wonders of the world because of their beauty and perfection. They were created by mankind in the past that are now revered in the modern world. In the world of investing, there is a principle that is dubbed as the 8th Wonder of the World. Albert Einstein called it “the most powerful force in the universe”, and that is compound interest. Anyone can use the power of compound interest to get rich.

Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.
– Albert Einstein

What is so nice about it is that anyone can use it to their advantage, regardless of age, gender, social status and educational background. It can create millionaires even for ordinary people.

What is Compound Interest?

Compound interest is the interest on loan or deposit. The interest is then added to the principal amount and accumulated through a period of time. Simply put, it is interest on interest.

To illustrate, for example you start saving $100 a month from the time you are 20 years old until you become 65 years old for your retirement fund. Let us say the fund gives 6% interest per annum compounded annually. By the time you retire at 65, you will have $475,471.46 in your account.

Compare the $475,471.46 with $66,000 which is the total amount you would have saved after 55 years of saving if you have decided to put your money under the mattress. That is the power of compound interest. Use it to your advantage, and it will work wonders for you. It is the key to wealth.

To take advantage of this principle, you need two things.

1. Investment

The first one is investment. For your money to earn interest, you need to invest first. Your piggy bank or your mattress will not give you compound interest.

There are many kinds of investment vehicles available out there from stocks, bonds, options, real estate, mutual funds, insurance, jewelries, antiques and many others. You just need to find one that best suits your personality and risk tolerance.

2.Time

The second thing that you need is time. As a general rule, the longer you have been saving, the more money you can expect to make. In short, more time means more opportunity for compounding.

Two-Edged Sword

However, compound interest is a two-edged sword. True, it can help you get richer but it can also help you get poorer; or worse it can even lead to bankruptcy. How? Through bad debts most especially credit card debts.

Most credit card companies use the power of compound interest to their advantage. This means that the interest incurred is applied to your principal amount each time you decide not to pay your total credit card amount due in time. What is more alarming is that compound interest is not added annually but rather to the balance amount to the end of each day.

Thus, compound interest is very beneficial but at the same time very damaging for you. In order to avoid this, make sure to pay the total amount due of your credit card on time. If you don’t have enough budget for it, practice delayed gratification.

Make compound interest your best friend not your worst enemy!

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Mar

2021

Money Lessons You Wish You Learned in School Part 2

Reading Time: 4 minutes

How are you doing with your finances? Do you consider yourself financially stable? If you do, then good for you. If not, you are not alone. Most people are having problems with money because only a few are financially literate. Most of us have to learn financial lessons the hard way. Just imagine all the things that you could have done differently if only you know a thing or two on personal finance. Here are some more money lessons you wish you had learned in school Part 2 (click here to read part 1 ):

1. Basic Investing Skills

A lot of people are scared of investing. This is just natural; after all, who would not be scared of losing their hard-earned money. You probably heard stories of people losing all their money through bad investments.

However, savings alone are never enough. You need to invest your money too. This is where your knowledge on Investment Basics will come in handy.

True, investing involves risk but it is also a great way to increase your wealth. You can minimize investment risks through financial literacy. Familiarize yourself with the different investment vehicles available out there. For beginners, you can learn about bonds, funds and stocks. Depending on our risk tolerance, you can try for the more advance type of investing such as cryptocurrencies, foreign exchange and stock options trading. It is only through Investing will you be able to slowly build your passive income.

2. The Power of Compound Interest

Out of all the items listed here, compound interest is one topic that was surely discussed in school. Unfortunately, since a lot of people hate math, compound interest is nothing more than a numerical value calculated from a math problem. You probably forgot the formula on how to compute it by now. Big mistake!

Compound interest is probably the most important concept of personal finance. If used to your advantage, it can give you vast wealth. However, it is a double-edged sword. It can either make you or break you. If it works against you, it can lead to your financial downfall. Do you know of people who are buried in credit card debt? That is a clear example of compound interest working against them.

Compound interest is the eighth wonder of the world. He who understand it, earns it…He who doesn’t pays it.
– Albert Einstein

3. Time Value of Money

The time value of money is one the most important concept for investors. It simply state that the value of your money today is worth more than your money tomorrow. To put it simply, it means it is better to have your money with you now than at a later date.

This concept involves time. Time is literally money. The sooner you earn or have money in your hand, the faster you can have money work for you. If this concept was discussed in school, making decisions in life would have been a lot easier.

For example, a buyer wants to buy your property at the prevailing market price. You declined the offer hoping that somebody else with a bigger offer will approach you later on. There is no assurance when the next buyer will come. What if the next buyer comes after a year or two? Is it still worth the wait?

Another example is let’s say the luxury bag that you have always wanted to have is on sale. You decided to buy it to take advantage of the sale. You use your credit card for the purchase. Unfortunately, you were only able to fully pay the item after a few months. With the interests incurred during those amounts, you ended up paying more for the bag.

The time value of money is also at work in investing. The younger you start investing, the more money you will have in the future. This also applies to other things such as your health. Choosing the right food and exercising today will keep you healthy. This will save you money on medical expenses later in your life. In practical terms, don’t put off what you can do today for tomorrow.

4. Building Good Credit

Do you pay your bills on time? Establishing a good credit is probably one of the most important things that you can do in your life. A good credit history will make your life a lot easier. Whether you are buying a house or a car, applying for a loan or a credit card or even getting a job; a good credit score will come in handy.

A credit report is an explanation of your credit history. It shows if you have an existing loan, if you are applying for one and your balance. It also shows your capacity to pay and whether or not you are paying your bills on time.

This is very important in your financial life. A good credit history will make it easier for you to get a loan. It can also qualify you for a higher credit limit and lower interest rates.

5. How Credit Card and Interest Rates Work

Do you understand how credit card and interest rates work? Do you even know how to read your credit card statement? So many people do not understand how credit card and other consumer loans work. As a result, they end up with an enormous credit card debt.

Credit card can be good or bad depending on how you use them. Credit card is a financial tool that you can use as leverage. However, it is never a good idea to use credit cards to purchase goods that you cannot afford in the first place.

The bottom line is that financial literacy can help us make better monetary decisions in our lives. It will help us achieve financial freedom and avoid bad debts.

Teaching personal finance in school can help our children have a better future.

First published in Pinoy Smart Living on 09.18.2019

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