Personal finance knowledge can be found everywhere. Think about it, you can speak about money with virtually anyone, there are hundreds of thousands of books, blogs, and websites about personal finance. How much of this financial information is authentic, valuable, and trustworthy? I will show you how to build your personal financial knowledge based on reliable sources so you can unlock your financial freedom.
- Building your personal finance knowledge is a long term investment. It takes time and dedication, but it is also the cornerstone of your financial freedom.
- From high school or college students to young adults planning for retirement, financial planning is critical for a successful life.
- Financial education plays a vital role during your entire life cycle. By understanding personal finances you will be able to choose the best credit cards, plan your monthly savings, avoid high-interest debt and decide where to invest.
Many people think that personal finance knowledge is mainly technical. Or that you need to be good at maths, that you need to understand all the nuances of compound interest and valuation. These qualities can help you to develop your financial life. Still, they are not the main differentiator between someone financially free and another person that is struggling. Your financial skills together with your attitudes, behaviors, goals, and general knowledge will shape your financial capability.
Personal finance knowledge starts by understanding yourself first
Understanding yourself is as important as knowing the basics of personal finances and financial planning. There are countless examples of people with excellent financial knowledge, that earn lots of money, and still answer NO when asked if they are financially free. It all revolves around knowing how much is enough for you. The tricky part is that there is no right answer that will ensure financial security. Actually, during your lifetime, what is enough will change. We will talk more about how to identify what is enough for you in a bit.
Learning about personal finance, especially in the early stages when you are just getting started, can be a challenge. The first step to getting started is knowing your financial goals and how you will approach each one of them. You must understand your finances to build a solid foundation. There is no way around it, you need a sound budgeting system in place and tight control of your expenses to get started. One right way of understanding where you are in terms of personal finance knowledge is to take a financial survey questionnaire. I have written a post that includes a free financial survey questionnaire. There is no need to login to take the test, and all the answers are listed and commented on so you can make a study plan for later on.
Barriers of entry – Why sometimes it is so hard to start?
According to a recent study, more than 80% of Millenials in America carry some sort of debt, most of it is either student loan debt or credit card debt. The same survey shows that 54% of them are concerned about their ability to pay off debt. Despite that, only 24% of American Millenials can demonstrate basic personal finance knowledge.
Most American Millenials are so concerned about having a student loan that they cannot even start saving for retirement. Any financial planner will agree that paying off high-interest loan debt is the first step to prepare for a bright financial future. But priorities are not always set correctly.
That is why it is so important to invest in your financial knowledge. Even if you are still in debt, you must educate yourself. Being financially literate is the best way to get your finances in order and build a sound retirement plan.
Personal finance is incredibly important, but it can also be incredibly difficult sometimes.
Let’s take an example from a study published in the Southern Economic Journal. The researches performed a survey with newly hired workers at a large financial institution. The new employees received a flyer containing information about the employer’s 401(k) plan and the value of contributions compounding over a career. Younger workers who received the flyer were significantly more likely to begin contributing to the program relative to their peers that did not receive the brochure. And that happened despite their student loans.
The pamphlet was, in fact, improving the employee’s financial knowledge. Many workers do not participate in their employers’ supplemental retirement savings programs. Even though these programs offer substantial tax advantages and immediate returns due to matching contributions.
Many workers choose not to contribute to such plans because they have other financial priorities. In most cases, the truth is that nonparticipants lack the financial literacy to appreciate the benefits of the program and set proper financial goals.
I’m going to show you how to build your personal finance knowledge and skills. You are going to learn how to do it, whether you’re a millennial, who wants to get by on a tight budget, or a working mom whose kids are in college. Investing time and dedication on your financial education is the key most important point to reach financial freedom.
My top 3 personal finance knowledge tricks to reach financial freedom are:
I am going to show you a list of financial knowledge sources that have been key to shape my personal finance decisions. I will show examples from where I have been educating myself about finances over the past decade or so. From retirement planning to understand my credit report, these sources taught me how to get my finances under control.
But first, let me explain what my key topics or subject areas regarding personal finance are. More than having an extensive list of books or links, it is essential that you understand what areas to focus on.
How to kickstart your personal financial knowledge:
- Understand yourselfUnderstanding yourself is as important as knowing the basics of personal finances and financial planning.
- Learn the personal finance basicsOnce you know yourself, its time to get a grasp of the fundamentals of personal finance. This basic knowledge will set the foundation needed for you to clear your debt, build up an emergency fund, and take control of your own budget.
- Start building your investment portfolioYour family budget is in place, you have your emergency fund, you master the basics of personal finance. Now its time to multiply your money. To build an investment portfolio that is balanced towards your risk appetite and your long term goals.
In practical terms, what I try to do to keep things interesting is to dedicate time across three areas in a cycle. I will read a book about one subject, then I will spend a couple of weeks learning about another. At last, I will close with a more technical topic, and then I restart the cycle. This method has helped me not to get overwhelmed or bored by having too much of the same item in a row. At the same it, it also ensures I keep my knowledge balanced between different areas.
Cycle through the topics, dedicate some time to each of them. How long you commit per area will depend a bit on your available schedule. For me, I usually stay a couple of weeks on each topic.
1- Understanding yourself:
The idea of fulfillment is quite evident when we are speaking about basic needs. Having more money so we can be fed, sheltered and warm does make a significant difference.
A big impact on our wellbeing is also felt when we get the funds needed for basic comforts and amenities such as clothing, furniture, and hygiene. From there, the line between what brings you significant fulfillment and what it does not gets ever thinner.
From the first car, you go to the first apartment and then to the first vacation house. You change your car to a luxury one and buy a second apartment. The road is never-ending, especially as you will always know someone that has more than you, or that has a fancier car or boat.
If we are not careful, at some point, having more money becomes having more to worry about. It’s the cycle of the mid-thirties overachiever. He/She builds an outstanding career, lands a well-paying job, gets surrounded by other successful people in high standard living.
Soon enough, the fulfillment from all the high profile dinners and luxuries starts to get thin. The person is left lost, trying to grasp some happiness by raising the living standards even more.
Ask yourself the right questions
These questions might seem a little profound and disconnected from finances. Still, in the long run, they will guide your choices and judgments, so understanding them is critical for you to reach your financial freedom:
- What makes you happy?
- What are your main goals?
- How do you want to achieve these goals?
- What are you ready to give up to achieve these goals?
- How much risk can you tolerate?
- Do you want to leave a legacy or inheritance once you are gone?
2- Understanding the basics of personal finance:
Once you know yourself, its time to get a grasp of the fundamentals of personal finance. Working on your personal financial literacy is one of the best investments you can make.
This basic knowledge will set the foundation needed for you to clear your debt, build up an emergency fund on your savings account, and take control of your own budget. The basics of personal finance include topics such as:
- How to do a family budget
- Spending your money wisely
- Learn to control your average cost of groceries per month
- Saving efficiently
- How to manage student loans
- Understanding compound interest
- Personal financial planning
Note that none of these topics include cutting all of your costs to save more, nor it includes taking high risks with volatile non regulated investments like cryptocurrency. Such options will be covered in another article when we talk about trying to multiply your capital.
Money management approach
Choosing what kind of approach to take to increase your wealth will depend on what you are looking for, on what you are willing to give up and on what financial freedom means to you.
Having basic personal finance knowledge lies in setting the groundwork for financial stability. Our objective here is not yet the multiplication of capital. The target is to have a solid foundation from which you will be able to take higher risks to get rich.
You can read more about these essential personal finance topics in this post: 6 proved steps on how to manage money and unlock financial freedom
3- Building the investment portfolio that fits your needs
Your family budget is in place, you have your emergency fund, you master the basics of personal finance, you have your checking account well monitored. Now its time to multiply your money. To build an investment portfolio that is balanced towards your risk appetite and your long term goals. Financial knowledge at this state will mean understanding:
- How to read macroeconomic indicators
- Portfolio allocation
- Saving and investing enough to reach your goals
- Risk management in personal financial planning
- ETF and Mutual Funds performance evaluation
- How federal reserve decisions can impact your personal financial plans
Start to save early in life is the best way to multiply your capital and build wealth for your future. It all lies in increasing the amount of time the investment is compounding favorable interest rates. It’s the most important thing you can do.
Furthermore, we can use the same reasoning towards credit card debt. Credit cards can severely impact your financial capability. High-interest rates can scale up your credit card debt and limit your financial choices. Saving and investing should be done looking for long term objectives like planning for retirement.
Financial choices – practical money management
Your financial management choices should aim at saving and investing to build wealth to yourself, not to a bank or credit card company. Therefore, understanding interest rates, credit card debt and how to efficiently pay student loans is vital.
Without a sound investment portfolio and mature financial decisions that suit your long term goals and appetite to risk, your chances of success will be much lower.
Once you start saving, you will need to allocate this money somewhere, and this is where building your investment portfolio comes in. Most financial professionals agree that asset allocation is one of the most important decisions that investors make. That means that the individual investments that you make are not as significant as the way your money is allocated. The proportion of money you allocate in stocks, bonds, cash, and equivalents, will be the principal determinant of your investment results.
Essential personal finance books – 5 classics for the basics
You might have heard about these books already. If you didn’t, that is great, because it means that you have in front of you an excellent opportunity to kickstart your personal finances knowledge with the best of the best.
The books below have been read by hundreds of thousands of people, translated to several languages. They have been recognized as the best in class.
This book was written more than 20 years ago, but it is still as relevant today as it was when first published.
I read this book when I was in high school, and it made a significant impact on my future financial choices.
It suits all ages and profiles, worth reading if you are just starting or if you already know a thing or two about finances. I still want to reread it at some point.
Since then, the author has published countless other books that I don’t recommend. Stick to the best one from him and then move over to other quality content.
It might be the best $5,39 you spend at Amazon. With 336 pages, it packs a lot of content while being comfortable and enjoyable to read.
The author says on the first page that “this book is not for everyone”. It is not a booking about investing per see, but rather about managing risks and speculating.
I read the book while I was a college student, and with it, I learned the basics needed to get started in the stock market.
Much of the fast track I had at the beginning of my management career was due to risky calculated bets. I would not have managed to make them without what I learned from this book.
We aught to take risks to multiply our gains. Learn how to do so for less than $12,99 at Amazon. With 140 pages full of examples and histories, you can get it done in less than a week.
Warren Buffet says it is “the best book on investing ever written.” That was why I first bought the book, and after reading it, I have to agree with him. This book can take your personal financial management to the next level.
The author, Benjamin Graham, was a professor at Columbia University, Buffet was one of his students.
Unlike Rich Dad Poor Dad or the Zurich Axioms, The Intelligent Investor is more technical, and it packs 640 pages of dense information. Luckily the revised version available at Amazon for $12,39 is annotated and has an excellent preface form Buffet, where he highlights the chapters that you should prioritize.
You need to have money in order to make money. Nothing better than progression fast in your professional career in order to score some extra cash.
Technical knowledge and formal education are entry-level requirements for any job. Once you already have a job, emotional intelligence is what will set you apart from the rest.
The way you manage conflict, build your colleague’s trust, and work in teams is what will leverage your career. For many years it has been one of my top references in terms of career progression.
No matter what is your field of work, this book will undoubtedly change the way you see personal relations at the workplace. For $11,63 at Amazon, it packs 400 pages of exciting and easy-to-read content.
Don’t be taken aback from the title, this is a good book.
I first had contact with this book during university and I refused to read because of the title. I was not willing to invest time in a self-help book about how to make friends. Almost ten years later the company I work for sent me to France for a week’s course held by the Dale Carnegie Institute. Interestingly enough the training was based on the book, I loved it and even bought the book.
Looking back, my most profitable investments to date have been done by the recommendation of friends or colleagues.
You need to build your network in order to have access to more opportunities, job offers, and investment options. This book can teach you how for $15,99 at Amazon.
Free online courses – only if from a top institution
There are countless options for online training offered online. I have tried a few and the one listed below is the best I have found so far, it is free and provided from a top Canadian University.
This is one of the best free online training I found to date. The interface is friendly, the language adequate, and the length of the modules is enough to cover the topic without getting burdensome.
It covers debt, budgeting, borrowing, real estate, investing, the power of time over money, and behavioral finances.
Taught by professors from McGill University’s Desautels Faculty of Management, the course is open to everyone. If you pass the tests, you even get a certificate – although the real value of it is to learn how to manage your money better.
BONUS TIP: Want to booster your monetary self-awareness? Check this post I wrote about financial literacy and take this free financial survey questionnaire. No e-mail, log in or registration needed!
Read more about personal finance knowledge:
Continue reading and learn more about personal finances:
- Family budget: 6 easy steps to reach financial freedom
- 6 proved steps on how to manage money and unlock financial freedom
- Hope, Predictions and Historical Data: 3 recipes for financial failure
- How to take risks when managing your money? 3 lessons I learned to avoid poor money management
- Risk management in personal financial planning. How to be reasonable and take moderate risks with money.
- Free financial survey questionnaire to booster your monetary self-awareness
- How to spend your money wisely
- How to choose a mutual fund benchmark index
- Learn to control your average cost of groceries per month
- Creating the right flexible investment plan to watch your money grow
About the author:
Hi, I am Leblon Blue. Mid-thirties senior manager on a large corporation. Happily married for seven years and waiting for my first kid. I have dedicated my past 15 years to build an engineering background and a stable career. After working in Europe, Scandinavia, and Latina America, I am now based in the Persian Gulf, where I manage the performance of a large corporation that operates in the region.
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