Finances
My Crash Course on Credit
One of the biggest blunders of my life was obtaining my first credit cardA tool for buying goods and services without needing cash on hand.. I maxed it out almost instantly buying shoes and cologne. I thought I knew how money worked, but had no idea about what financeHow money is acquired, and then spent or invested. and creditThe ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future. actually meant. The first thing I needed to realize was that credit was a toolA device used to carry out a specific function.. Once I realized that owning the shoes and cologne meant newfound debtAlso known as Liabilities, Debts are moneys due after using credit to fulfill a payment, I did everything I could to avoid it. Only when I’ve made the money to cover the items, would I purchase them. It’s okay to put things on layaway when we really need them, but we should be doing everything we can to avoid paying interestInterest is the charge for the privilege of borrowing money. Paying interest is like working for the money, when we want the money to work for us. You've probably heard the phrase "Time is money." and it's true, we often use money to save time, or buy more time. You will find when money is the one working for you, you have time to do the things you really want.
Defining Credit
The first thing we will need to discuss is creditThe ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future.. How does it work, and how do we even get a credit cardA tool for buying goods and services without needing cash on hand.? I believe it's valuable information to know there are 5 basic criteria for determining your credit score. 15% of a credit score is determined by the length of your credit history so act accordingly. The sooner you understand credit, and how it works the sooner you are able to reap the rewards of it.
Assets
From the highest level of Finance, we really only want our hard earned creditThe ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future. going toward purchases that are going to appreciateGrow or become more admirable in value. One of the greatest accomplishments in a lifetime is becoming a homeowner. Now, this is not for everyone, but yes there is a lot to be said about owning a home. The same goes for owning a car, or a boat, but let’s be real, owning assetsan item of value owned. that appreciate in value are where wealth is made. If you haven’t paid any mind to owning a home before, you should greatly think about it. As Dave Ramsay says, you should pay yourself first, and in my eyes, owning a home is the epitome of doing that, otherwise a rent paid to a landlord is hard earned money being squandered.
Since Payment history, and Length of credit history together make up 50% of your credit score, it’s without saying that the sooner you find your first credit card the better. When you think of a credit card as an extension of your cash flowCash flow is the net amount of cash and cash-equivalents being transferred into and out of an account capabilities, you are at much less risk of running into debt.
Credit Cards With Incentive Programs
A credit card when used properly is a great tool. Most credit cards have some sort of cashback feature and therefore will give back a percentage of what you are already spending. This is the first life hack to start on your journey of money working for you. If you move your normal spending to the credit card, voila, you now have a positive stream of cash flow. This can be done for any stream of money you have access to, just start spending any which way you can with your credit card instead of using (Cash, Checks, Debit Cards, Money Orders, etc.) now you have already increased your net income by the best offer you can find. I would like to note that this newly found flow of cash can be used to fund investment opportunitiesAnything offered for sale, or traded, based on future profit or appreciation. I will detail a later post that goes over investingAcquiring an asset with the goal of it generating income, or appreciating in value. and where you can put that cash flowCash flow is the net amount of cash and cash-equivalents being transferred into and out of an account to work for you.
Budget Budget Budget
Now for the nitty gritty, budgetingThe act of planning a budget. Budgetan estimate of income and expenditure for a set period of time.’s are not difficult. It’s only difficult to come to a realization that you should be spending a specific amount on everyday objects. The essence of budgeting is that you know where your money is going, and how much you have. The one detail in a budget that matters the most is known as cash flowCash flow is the net amount of cash and cash-equivalents being transferred into and out of an account. Cash Flow is simply the amount leftover once a budget has fulfilled it’s purpose. Either you are left with a net surplusThe amount by which something, especially a sum of money, is too small. (+$100), or a net deficitThe amount by which something, especially a sum of money, is too small. (-$100). Once you have budgeted, and have what is known as Free Cash FlowAKA throw away money, money that can be lost and your normal day to day necessities will still be met., you can begin investing.
Risk Tolerance
I believe no finance lecture can be complete without covering riskThe possibility of something bad happening.. To put it simply, and with the most impact I can. DO NOT INVEST MORE THAN YOU ARE WILLING TO OUTRIGHT LOSE! This meaning, if your entire portfolio is worth $1,000 and you find out tomorrow that it has disappeared how will you react? Change the $1,000 to an amount that you start to feel squeamish about and that is your risk tolerance. I will also add that, without great risk, there is no chance for great appreciation.
Financial Freedom Is Within Sight
I hope that this information has been helpful and maybe even encouraging on your journey to financial freedom. I hope to go over all of these subjects in further detail throughout time, and would love to hear your thoughts. Helping each other is crucial in our journey as a society if we are to succeed. We may not always see eye to eye, but together we can overcome any obstacle.