Welcome To The Classroom
The school classroom is where students should learn about personal finance. Every day that we wake up we are influenced by money. It is important that young people understand how the world of money works. This page is one place where you can come to learn more about important life skills such as budgeting, saving, spending and investing.
WHAT DOES MONEY MEAN TO YOU?
People have different relationships with money. You may have heard it said that ‘Money can’t buy happiness’ or ‘Money is the root of all evil’. You may have also heard that ‘money buys freedom’ or that ‘time is money’.
We need a certain amount of it just to satisfy our basic needs of food, water, shelter and clothing.
Money Is Just A Tool
But money is really just a tool. We use it to buy the things that we desire. It’s used to measure the value or price of things. It measures our income and it measures the value of the things that we own (our assets) which in turn tells us how ‘wealthy we are. Most people want more and some people have more than they need.
It’s important because although it doesn’t guarantee happiness, it can help us to achieve our goals. Understanding how it works and how it can be used can also provide security for us and our families and prevent us from being affected by some of the problems that relate to money.
Those who misunderstand, misuse and fail to respect money can find themselves in a situation where their quality of life can suffer. Those who master the use of money can provide for their needs and wants, enjoy a high standard of living, achieve their life goals and help others to achieve theirs along the way.
Many people have a goal of ‘financial freedom’. Money can buy lots of things. Perhaps the two most important things that it can buy are time and freedom.
WHAT IS ‘FINANCIAL FREEDOM’?
The term financial freedom can mean different things to different people. It could mean that you can retire and live off your investments. Or it could mean that you are able to cope with any financial situation or emergency that arises, or that if you lose your job then you can take a holiday instead of needing to find another one straight away.
It could mean you can afford to take up your dream job for half your regular salary. It could just mean you are living a happy, rewarding life without any financial stress. Regardless of what it means to you, it is both a worthy goal and achievable for us all.
Be A Super Hero
But being worthy and achievable doesn’t make it easy. We can think of ourselves as superheroes fighting to achieve this goal. You can use the term ‘Freedom Fighter’ if you wish. So, if we are freedom fighters or superheroes, striving against the odds to achieve financial freedom, then we will need a superpower, right?
You will need to use the superpower known as the ‘money multiplier’, also known as compound interest.
You will learn more about this superpower in future posts. But this quote from Albert Einstein says it all.
“Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”
5 SIMPLE RULES FOR FINANCIAL FREEDOM
Rule Number 1: Spend less than you earn and save the difference. This is super simple. Financial freedom is not possible without savings. It’s savings that are used for investing which is how we make our money grow. So we have two options: increase our income or reduce our spending. Doing both works best.
Rule Number 2: Pay yourself first (Automatically). Don’t save the money left after spending. Instead, you should spend the money that is left after savings. To make this more effective you should have your savings automatically debited from your income so that you don’t even miss it.
Rule Number 3: Change your spending habits. Spend money on only things that you either need (eg. food, electricity, rent) or things that you know will improve your quality of life in the long term. Buying ‘stuff’ doesn’t make us happy. Buy things that you know will add value to your life in the long term. I also subscribe to the idea of buying experiences over buying goods.
Rule Number 4: Become a simple investor. Compound interest is your best friend and index funds are the easiest way to make it work for you. Sometimes it seems like the world wants to make investing seem too complicated, so that you give up or pay somebody to do it for you. You don’t need to.
Rule Number 5: Start now. All good strategies require time. Time is also your friend. Investing requires time and increasing your knowledge as well as developing your financial literacy skills requires a time investment too. Invest in yourself first.
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