Personal finance is just that, personal.
Personal finance is not about what your friends are doing with their money, what your parents are doing with 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 totally on you.
Personal Finance is Personal
When thinking about personal finance, thousands of questions can come up:
How much should I save?
How much should I invest?
What should I be investing in?
What companies or assets could give me the best return on my investments?
What banks or credit cards should I be using?
Who can I turn to for advice with my finances?
Before asking any of these questions, we should first turn inwards and realize it’s crucial to realize that personal finance is personal. We must first ask ourselves the right questions and figure out what our goals are.
Some questions to get started are below:
What kind of lifestyle do you want to live? What do you love to do? Do you want to travel around the world? What about spending more time with your family? Do you want to spend Minnesota winters in Florida? Do you want to go to the Super Bowl? Would you want to eat out every week? Do you want to start your own business? What about retiring at 45, 55, or 65? Do you want to pay for your children’s college?
The most crucial question you need to ask, and one that will have the greatest effect on your finances, is:
What is your relationship to money?
Once you’ve figured out where you want to go in life, and what lifestyle you want to live, then you can start crafting a plan, and finally start building the life of your dreams.
Crafting a Personal Finance Plan
It’s so simple, and yet, so many people don’t actually put in the time to first ask themselves the necessary 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. Again, it’s all up to you on how to put your plan into action.
Writing out your goal as a SMART goal can help in this situation:
SMART = Specific, Measurable, Attainable, Realistic, and Time Frame.
Specific: What dollar amount is attached to your goal?
Measurable: Can you measure your goal in some way?
Attainable: Is the goal possible, like, “I’m going to get one new client a month for my side hustle”?
Realistic: Is it realistic? For example, we know I’m not going to make 1 billion dollars next year.
Time Frame: Can you accomplish it in the next X months, years, etc.?
Write your goal down, work backwards from your goals, and create a plan.
Make a list: what is the smallest actionable item you can do today to get you going towards your financial goal?
By doing these 3 things, asking yourself the right questions, figuring out your wants and needs, and making a plan to reach your goal, you will be better off financially than before.
You will understand what your personal needs are financially, and can make adjustments over time to better align your actions with your goals.
My Money Story
When I was a young boy, I was exposed to personal finance through my parents and my grandparents. My mom showed me how to balance a checkbook, budget, and how making a list for the grocery store can save money.
During the summertime, I’d visit my grandparents, where my grandma would give me $12 for the week to spend on whatever I wanted. She would make sure I understood that the $12 was all I got – if I spent the $12, I wouldn’t get any more.
From a young age, I understood the value of saving and building wealth for the future. Going into high school and college, I realized the power of saving over time, but now I needed to focus on building my income.
In high school, I was working as a lawn mower and trimmer for a local business, and refereeing basketball on the weekends. I was getting paid $9/hour cutting lawn, and $15 per basketball game.
I was using all of my earnings to go towards paying for college and not saving too much. Luckily for me, my parents had helped save up a little bit for my college education and I was able to get through my undergrad degree debt free.
Increasing my Income through Higher Education
During my senior year of college, my father’s company needed some help in the accounting department. For $12 an hour, I was offered to help out with bookkeeping, invoicing, and payroll. In the Fall, I would be pursuing a Master’s of Financial Math, and wouldn’t be looking for a job in the meantime, so I took the offer and started work.
In 2.5 years of working in the hotel management industry, I increased my pay to $16 an hour, and was able to leave my Master’s program with just $8,000 in student loans.
Before graduating with my Master’s degree, I took a job in the risk management department of a regional bank, which paid $63,000 a year, plus an 8% bonus.
In 5 years, I went from making $5,000 a year, to $20,000 a year, to $63,000 a year.
Building Wealth through Real Estate and Growing my Income
After graduation, I aggressively paid down my student debt, and started house hacking as a way to continue to build wealth.
In the summer of 2015, I bought a 3 bedroom house and had 3 roommates paying me $1,650 total a month. With a mortgage of $1,820, I effectively paid $170 in “rent” and banked the equity.
In the past 2.5 years, I’ve received more than $39,000 in rental income! This has helped me grow my income to nearly $100,000 a year.
While all of this was happening, I bought a used 2014 VW Jetta for $13,000, and promptly paid off the auto loan I took out.
In addition, I was proving my worth at work and in the past 3 years of working, I’ve increased my salary from $63,000 to $88,000.
Finally, I’ve been starting to hustle more on the side to increase my income. I’m blogging, performing statistical analysis and consulting for doctors, and doing various things as a small business owner.
Now, I’ve positioned myself in a great spot to pursue my goals.
My Goal and How I’m Applying the #1 Rule of Personal Finance
My goal is to build wealth for my future self, my future family, and to learn and grow over time in order to impact the lives of others.
For me, I’m looking to increase my income. I track my expenses each month, and identify where I’m succeeding and where I’m failing, but for me, increased income will help me save more and invest more. This will be much more impactful than reducing expenses each month.
I save about 35% of my income a month. I spend a little more than I should on housing, and eat out a little bit more than I should, but personal finance is personal. Yes, I could save 45-50% a month, but that would force me to adjust my lifestyle to move houses (potentially leaving a good commute situation), or start bulk cooking and packing lunches for work. In both cases, I’d only be saving a few hundred bucks more a month.
Through my hustle, I can add a couple hundred bucks a month in income much easier than cutting my expenses.
This is in line with my goals as well: increasing my income can help me increase my wealth. I’m adding many skills to my toolbox and learning a tremendous amount. These skills will translate into my ability to provide value to future employers and business partners. This value will be compensated for in a higher income in the future.
I know my goal, and I’m living it. I’ve identified my goals, and I hope this will inspire you to do the same.
My goal is to build wealth for my future self, my future family, and learn and grow over time to be able to impact the lives of others.
Other Potential #1 Rules of Personal Finance
When I was thinking about the number one rule for personal finance, there were a number of things that popped up in my head:
- Live within your means
- “Living within your means” means spending less than you make. If you never spend more than you make, you will never be in a situation where you are strapped for cash. Over time, your nest egg will increase, since you’ve had a net positive cash flow throughout your life.
- Save X% a Month
- Saving X% a month is similar to living within your means, but it puts a mathematical spin on the situation. If you are saving a certain percentage of your income a month, theoretically, you are living within your means. You aren’t spending more than you are making if you are saving.
- Track all of your income and expenses
- This is my #2 rule and a piece that is overlooked in many areas of life. What gets measured gets managed. The simple act of pulling in your transactions and categorizing them into an organized fashion to identify weaknesses and strengths of your spending habits can lead to improvement.
Here’s the thing though: all of these can be summed up with the statement, “personal finance is personal”. Really, if you want to be someone who travels the world, then you will start to adjust your budget, live within your means, and track your expenses to optimize your money situation to be able to do that.
Start with the why, and go from there!
The #1 Rule of Personal Finance According to The Mastermind Within Community Members
What’s great about having readers and being involved in the personal finance community is I can ask for help in gathering what others believe is right for their situation. I asked others what their #1 rule of personal finance is.
Grant, a blogger from Life Prep Couple, said the following:
Find an important reason why. Once you have a why, then you will figure out how.
A succinct and powerful thought in alignment with personal finance is personal. Thanks, Grant, for your contribution!
Diego, a regular reader of The Mastermind Within, says:
What gets measured gets managed. It brings self-awareness, which is quintessential in personal finance. But a few other rules I follow are: don’t share numbers with anyone, don’t brag, don’t envy, stay focused, and celebrate all milestones.
I love it – what gets measured gets managed is so important! Thanks Diego.
Automate your savings. For example, setting up your IRA contribution to be withdrawn from your bank account each month is great as it removes one more thing to worry about. It also keeps you from seeing extra cash in your bank account that you might be tempted to spend on stuff you don’t need.
I completely agree with this advice as well. If you never actually see the money, because it’s automated away from you, you can’t spend it! Thanks Trail to FI for your contribution.
These few contributions prove personal finance is personal. Everyone has a different spin on what’s important to their situation!
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 following up by putting their plan into action – whether that’s through budgeting, saving X% a month, or paying down debts for the future.
After reading this, I’d like you to assess where you are at financially. What is your dream? What kind of lifestyle do you want to live each and every day? Are your financial habits and actions in alignment with your goals?
Once you are done with this assessment, then you can make adjustments and changes to get you going towards your goals and dreams.