In 2016, I graduated from Frankfurt University with a degree in economic science. And while I understood the monetary policy of the European Central Bank, I didn’t know how to make your money work for you.
It turns out; most people aren’t smart about their finances. The majority on this planet will never understand the principles of money management.
It’s not because these people are too dumb to become smart investors. They’re just too lazy to learn.
I committed to learning in 2016: I took masterclasses, connected with financial experts, read fourteen finance books, and attended conferences.
Four years later, I‘m 100% confident money management is a skill anybody can learn. And it doesn’t have to take you four years to mastery.
Maybe you know your net worth already.
Maybe you don’t.
No matter where you‘re standing on your financial journey, you can take your money management from good to great with these simple steps.
1. Read five finance books
Once you’re out of university, you can dedicate your time to learn things that matter for your life situation. And after graduating, money matters more than almost anything.
By reading five finance books, you’ll know more about money management than 99% of the world population.
Reading gives you access to the best brains on earth. And by learning from the best money managers, you’ll find yourself on the fast track to become both wealthy and wise.
There are a lot of good books to help us become financially smart, but not all books are created equal. The best ones are both relevant and practical.
The best finance books contain applicable advice and fit your current life circumstances.
Pick the ones that connect build on your existing knowledge and suit to your current life situation. Here’s a list of three books that improved my money management skills:
- Rich Dad Poor Dad by Robert Kiyosaki
- The Barefoot Investor by Scott Pape
- The Total Money Makeover by Dave Ramsey
Reading finance books is the best lever to take your money management from good to great. You’ll get smarter with every page you turn.
But even the best books are worthless, if not applied. Summarize your learnings and reflect on them, for example, by sharing your learnings with an audience.
2. Have money conversations with your network
Most people don’t talk about personal finance. In most cases, it’s their fixed mindset that prevents them from learning. They’re too proud to reveal that they might not know something.
Once you dare to address the money topic, you’ll realize most people will know less than you do. That’s true even before you’ve finished your five finance books.
Money shouldn’t be a taboo in any conversation. We all deal with the same questions, face the same struggles, share similar fears.
When you find companions who know more than you do, you found a treasure. Be humble and keep a curious mind. There’s plenty of money lessons you can learn from.
Bring the money management topic up in conversations you’ll be blustered how many people are struggling with the same issues.
If you don’t want to make it personal, you can, for example, talk about the finance book you’ve read.
Which money lessons are worth sharing?
What’s the opinion of the people around you on the topic?
When I finished Gerd Kommer’s bible on Exchange Traded Funds, I told my friends how surprised I was that most bank consultants don’t act in your favor.
Then, I asked whether anyone has set up ETF saving plans, and if yes, which depot they’d recommend. In that way, I learned from the people around me while consolidating my theoretical book knowledge.
By having honest money conversations with your network, you’ll level up your money management skills.
3. Set and know your financial goals
We all know persons with blurry goals like: “One day, I’ll be rich and live in financial freedom.”
While financial independence is an admirable goal, it’s also a fluffy one. Your goal is useless unless you know precisely the numbers behind this term.
What does financial freedom actually mean to you?
What are your yearly living costs?
When do you plan to retire?
Subtract your desired retirement age from your life expectancy. Then multiply that number with how much you spend every year.
That’s what you’ll need.
Once you know the number, you can think about ways to earn more and spend less. The less you spend and the more you make, the faster you’ll be able to retire.
Once your financial goals are razor-sharp, you’ll feel motivated working towards them.
4. Analyze your net worth every month
To be honest, doing a net worth analysis is pretty hard. At least it was for me the first time I gathered all my data to fill my net worth analysis.
But once you’ve set up your system, it’ll only take you 10 minutes a month. And the reward for analyzing your net worth is priceless.
You’ll have a snapshot of your current financial situation. It’s how to measure whether you’re on track to reaching your financial targets.
Your net worth equals all your assets, minus all your liabilities. If your assets exceed your liabilities, your net worth is positive. If your assets are less than your liabilities, your net worth is negative.
I won’t bore you with details on the meaning of the different types of assets like bank accounts, deposits, mutual funds, stocks, retirement funds, real estate, and commodities, etc.
But if you’re interested in knowing what belongs inside a proper net worth analysis — click here to get your free template for your next review.
I go through my net worth once a month. In the beginning, I didn’t like it, but once I saw how my money is growing, it started to become a habit, I look forward to.
Every month, without fail, I set aside 10 minutes and update my net worth tracker. To manage your money like a pro, you must know your net worth.
Money won’t buy you happiness. But managing your money like a pro will help you stop worrying.
I felt stupid when I learned that bank advisors do not always act in my best interest. But it’s precisely these kinds of insights that will take your money management from good to great.
It’s in your hands to improve your money management skills:
- Order a finance book and start reading your first out of five
- Dare to have money conversations with the people around you
- Have a number for your financial goals
- Analyze your net worth every month
Do these four things, and you’ll soon find yourself on your path towards financial freedom. Or, as Goethe, the namesake of Frankfurt University put it,
“Knowing is not enough; we must apply.
Willing is not enough; we must do.”