In the conventional scheme of things, you’re destined to spend close to two decades in school. From elementary school through college, you’re bombarded with a plethora of information that is barely applicable in real-life. Don’t get me wrong. I have nothing against formal education. My only problem is that schools overlook personal finance, yet this is an essential pillar when striving to achieve success in life. Financial wokeness will take you farther than calculus ever will and as such here are seven personal finance lessons I know school never taught you!
Lesson #1: How To Make Money From Your Laptop
Remember when a traditional 9–5 job was the only ticket to financial success? Thank heavens those days are behind us. Today, you could easily earn a full-time income by transforming your laptop into a money-making machine.
That’s right, you don’t have to work for someone else if you don’t want to. Maybe you hate the idea of commuting daily or tied to your cubicle for 8 or more hours a day. Even if you just want an extra income stream to raise your financial stakes, all you need is a good laptop and a strong internet connection.
The internet is ripe with opportunities for everyone, and it doesn’t matter your education level. If you’re good at something, people will look for you and pay for your services. And the best part is, there’s no limit to what you can do. You’re passionate about fitness? Start a fitness blog and collaborate with fitness brands once you secure great traffic. Or maybe you’re a great writer? Offer your services as a freelance writer and attract up to $200 for every written piece. Have natural entrepreneurial skills? Open an online store and start a drop shipping service. And the list goes on and on.
Jobs such as freelance writing, virtual assistance, social media influencing, drop shipping, and graphic design can earn you a full-time income. The best part about working from your laptop is that you don’t have to give up your freedom. Most remote jobs allow you to set your own hours and work from wherever you feel comfortable.
Lesson #2: How To Invest In Income Producing Assets
The next financial lesson that school won’t teach you is how to invest in income producing assets. Now, here is the thing. There’s no short cut to growing wealth other than having multiple streams of income. Unfortunately, securing multiple jobs is impossible for most people, and so is running multiple businesses. This is why most people choose to invest in income producing assets to increase their cash inflows.
Also known as cash producing assets, these are investments that generate passive revenue. These assets are highly favoured by investors because of their potential to generate income over a long period of time.
Also, because these streams are passive, it means that they won’t require much of your time and energy. A good example of an income-producing asset is real estate property. Let’s say you purchase a real estate property for $100,000 and choose to rent it out for $1,000 every month. It will take you about eight years to recover your initial investment, before you start enjoying profits for years to come.
You can enjoy passive earnings with other cash-producing assets like stocks, high-yield savings accounts, money market funds, government bonds, and certificate of deposits. Some of these options offer impressive amounts of assured interest, making them a worthy investment.
Lesson #3: How To Track Your Money
Moving on, school will never teach you how to track your money, yet this is the single, most important money management technique you will need to acquire to be financially successful. While most people can work and earn an income, it’s quite surprising that a vast number of them have no clue where their money goes. In short, they don’t know how to apportion their income appropriately, hence they usually end up squandering it.
If your goal is financial stability, you must have a clear picture of your monthly cash inflows and outflows. This tracking process is essential because it births another key financial habit which is budgeting.
For starters, a budget is a monthly financial plan that guides how a certain amount of money is utilized. A budget enables you to pit your monthly income against your expected monthly expenses, and to make sure everything balances.
Effective budgeting significantly raises your stakes of winning with money, so you have to get it right. But how do you do this?
The first step is to write down your monthly income. Second, list out your routine expenses. Start with fixed monthly expenses like rent, utility bills, and school fees. Then move to miscellaneous expenses that vary monthly like entertainment, phone bills, and groceries. Next, allocate the amount of money that you wish to spend on each of these categories. Do so in a way that leaves some extra money (about 20% of your income) for your savings. By tracking your money this way, you can identify little gaps that could be derailing your financial dream. Tracking also allows you to make necessary adjustments, especially if you find yourself wasting money on useless things.
Bottom line is, taking inventory of your spending habits is an important piece of the wealth puzzle. Without it, you will never understand how your salary seems to slip through your fingers.
Lesson #4: How To Identify An Undervalued Stock
To be honest, the only true gauge of your potential net worth is how smart your investment tactics are and as you’ll find out, value investing is one tactic that big-wig investors swear by. It refers to a technique that capitalizes on stocks whose market value falls below their intrinsic value. In simpler terms, value investing capitalizes on undervalued stocks. Buying an undervalued stock becomes profitable when the market starts catching up with its true worth. Investors can then sell their shares at a higher price and make high profits as a result.
However, finding an undervalued stock takes skill and market experience. It isn’t a given that every low-priced stock is undervalued. Actually, you may come across cheap stocks that undergo an even sharper price decrease in the near future. So, what are some financial tips for picking under-valued shares?
The first, most obvious method is to compare shares of multiple companies within the same industry. If most shares lean on the higher side, this could be the first indication of an undervalued stock.
Secondly, a company’s financial statements also tend to be good indicator of its financial position. Before buying a stock, scour through the company’s income statements and quarterly earnings reports. Such documents show a company’s profitability compared to its competitors. By evaluating a company’s financial position, you might notice a steady upward swing in their annual earnings, which is often a good sign. Especially if their profits are high and their debts are low, you’re headed in the right direction.
Other tools that can help you identify an undervalued stock are ratios, and price/dividend yield. Take the market price per share and divide it by the book price per share. If this ratio is less than one, there’s a chance that the stock is undervalued.
Lesson #5: How To Negotiate A Higher Salary
How well can you prove yourself on a salary negotiation table? While learning how to negotiate a higher salary is not a classroom-taught skill, it heavily determines how fast you break income ceilings.
Most individuals step into the corporate scene with very little bargaining knowledge, and as a result, often end up with the shorter end of the stick. Don’t go down the same road. Whether you’re shooting for a promotion or making headway into your first job, negotiation is a must-have skill.
But how do you go about it? How do you face your boss and convince them to add more meat to your monthly paycheck? Relax, it’s not as hard as you think.
First, always know your market value. This is an advantageous starting point if you’re new to an industry. Market value is the average salary of industry professionals with your similar set of qualifications. Visit sites like Glassdoor and Indeed and scribble down the salaries from the lowest to the highest. You can then settle on a value that seems reasonable, without underselling yourself or exaggerating your value. As you do this, make sure you settle on a specific number. Ambling around a periphery might make you appear indecisive or unfamiliar with the industry you’re getting into. For example, instead of stating a range of $2,000–2,300, it’s better to start off your negotiation at $2,250. Specificity does earn you more points.
Another factor in negotiations is your demeanor. While at the negotiation table, confidence is key. It always sets a good precedent for a negotiation. Make sure you stand your ground no matter how intimidating the other side is. If it’s a first-time job, present your qualifications and build a strong case based on your skillset, achievements and work experience. If you’re targeting a salary raise at your present workplace, base it on the value you’ve brought to the company thus far. Also, feel free to bring up any awards or positive reviews you have received in your current or past roles and finally, don’t be pushy, but don’t be a push-over either!
Lesson #6: How To Prepare For Economic Downturns
Unless you studied economics, the concept of economic downturns is probably alien to you. But if you’ve lived long enough, I’m sure you’ve experienced a time when the economy transitions into a slump. Over a time of about 11 months, economic activities reduce significantly causing drastic negative effects of people lives. This is what is referred to as an economic downturn.
Also known as a recession, an economic downturn often results in unfavorable conditions for businesses, stock market trading, and employment. This is a time when certain jobs become phased out and businesses begin to disappear. Stock prices also take a dip, leading to crippling losses for investors.
However, it’s not all gloom and doom, because you can actually prepare for an economic downturn. One of the best ways to do so is to have an emergency fund. Thing is, it’s hard to predict when a recession will hit. Take a good example of the Covid-19 pandemic; none of us saw it coming. Everyone went ahead to make huge plans for the year, oblivious that a pandemic was about to subvert the economy. Not to say that the pandemic caused a full recession, but it almost did.
And the thing is, such emergencies rarely knock before stomping in. Therefore, its highly advisable to have funds set aside to cushion you in case you lose your job to a recession. This way, you’ll have a way of paying rent and buying food as to devise a plan to get you out of the mud.
Also, start paying your debts as early as now, especially the high-interest ones. Navigating a tough economic period will be much easier when no one is stretching out their hand demanding you to pay them back.
Lastly, hop onto any good opportunity to invest. Whether that means refining your skillset to make you more retainable in the job market, or buying into stocks, do it. You’ll thank yourself later.
Lesson #7: How To Educate Yourself In Personal Finance
Despite failing to teach you all these important financial gems, school still won’t show you how to learn them yourself. But thanks to the internet, acquiring personal finance knowledge is easier than ever.
Some of the best sources to learn about money are blogs, investment books, webinars, learning platforms and of course, YouTube University!
So instead of wasting hours on Netflix, visit sites like Udemy and grab a stock-market course. This is a great way of investing your time and money and can guarantee future financial rewards too. If you love to read, go for personal finance books. It could be biographies of Big wig investors, or humorous stories about people’s worst financial mistakes. You won’t regret it.
There you go! Those are the seven financial lessons that school definitely didn’t teach you.