How To Get Your Shit Together (Financially)
I read some pretty shocking statistics tonight.
Pretend you are at a party with 25 friends. You feel curious, so you ask around to find out who has loans and who doesn’t. Of the 25 people there, almost everyone there has loans: only 8 people don’t.
Then, you go around and ask a few simple questions about money: how long a loan takes to double, how inflation affects things, etc. Even though nearly everybody at the party has a loan, and they all claim to be experts on money, you can only find 2 people out of 25 who can answer your questions correctly.
This is what it’s like in America. 66% of all Americans have loans, and only 8% understand basic financial principles.
It’s no wonder banks are repossessing homes and cars at an increasing rate: no one understands what they are getting into when they sign the loan documents.
Here are a few financial principles to keep in mind that can keep you out of trouble:
If you are earning 1% interest on your money and inflation is 2%, then you are losing money. Inflation is like a rising tide: if you aren’t above it, then you are sinking.
If you take out a loan and pay 6% interest, and you don’t make any payments on it, your loan amount will double in 5–7 years. If you pay 20% interest (like on a credit card) then your loan amount will double in 2–4 years.
Don’t ever take out a loan. Only buy things with cash. A car dealership may approve you for a $30,000 new SUV, but that doesn’t mean it’s a good idea for you. You will have to pay up to $600/mo or your new car will be taken away. Auto loans last 5–7 years. In this unsteady economy, do you know that you will still have a job in 5–7 years? You can buy a used car for $5,000. It might be 20 years old and look terrible, but while your friends are having to choose between feeding their children or making car payments, you will be rolling down the road with peace of mind and a smile on your face.
If you absolutely must take out a loan, know what you are doing and educate yourself beforehand. The rich taking advantage of the poor is a tale as old as time: wealthy lenders take advantage of your ignorance to give you a loan with unfair terms that explot your weakness. In ages past, there would be nothing you could do about it except suffer the injustice. Now, everything ever known is at your fingertips: anything you want to learn is online, including information about loans. It’s ok to be poor, but there is no excuse for ignorance. Don’t get taken advantage of. Take the time to know what you are doing.
Apparently the vast majority of Americans have zero savings or investments. Here’s how to invest:
Put 10% of every paycheck into RobinHood (a stock investing app for your phone). Put half your investment money into SPY and half into BND. Then leave it in those two stocks and never take it out. Sometimes it will go up slowly. Other times the economy will drop and people will tell you to sell, and that’s when you should buy more, because it WILL come back up again.
Here’s how to save:
Open a savings account and a checking account. Deposit your paychecks into the savings account. Transfer a small amount from the savings to checking at the beginning of every month, only what you think you’ll need to spend. Then track your spending with an app like Mint. I was shocked to learn how much I was spending on restaurants and movies each week.
