Mastering Personal Finance: The Importance of Financial LiteracyLAST UPDATED: June 28, 2023 | By Conrad Golly
Listen To Episode 1 Here
The Money Mainstream podcast emphasizes the importance of financial literacy and provides insights into managing personal finances. In its first episode, Conrad focuses on the basics of personal finance, including budgeting, saving, and investing.
He introduces the 50-20-30 rule for dividing after-tax income into needs, savings and debt reduction, and wants, and emphasizes the need for discipline in managing debt and building an emergency fund.
Conrad also talks about credit cards, APR, and the basics of investing in stocks and ETFs. He also discusses the importance of understanding loan terms for student loans and suggests resources for further learning.
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LINKS & RESOURCES
- Groundfloor Passive Real Estate Debt Investing
- Lendtable 401k Match Assistance
- Conrad’s Website
- M1 Finance Automated Investing and Saving
Hello. Welcome. This is episode one. The Money mainstream podcast. I’m your host, Conrad Golly. Just a normal, regular unemployed guy, and we’re here to talk about some financial topics. Today we’re going to be talking about mastering your financial literacy. If you need a written form of this podcast, I will leave a link down in the description on Moneymainstreet.com. You can also go to the website and just search financial literacy and you’ll have that article come up for you. Many of us feel overwhelmed when it comes to managing our finances. But we know that gaining financial literacy is important. But we don’t know where to start or how to start. This can lead to making costly mistakes. With our money, we might be feeling lost about budgeting our saving goals or get stuck in a cycle of debt. Fortunately, I’m here. We don’t need to navigate this alone. We’re going to go through some beginner topics in financial literacy to build up a nice, strong base for our later episodes. Why is financial literacy important? First, better financial decision Making when you have a good understanding of financial concepts, you are better equipped to make informed decisions about your money. This includes decisions about budgeting, saving, investing, managing debt. By making better financial decisions, you can improve your financial situation and work towards achieving your financial goals. Improved Financial Stability Social stability is an essential part of having a stressfree life. Financial literacy can help you achieve this by teaching you how to create a budget, how to save money, how to manage your debt, how to invest with this knowledge, you can avoid financial pitfalls and then build a strong foundation for you and your family. You can have increased benefits to your health. Just like physical health, financial health is important for your overall well being. By understanding these financial concepts, you can take control of your finances and make sure that you are working hard towards them. This includes learning how to manage your credit score, invest money, and plan for retirement. And you’ll see the physical benefits once you start to understand these topics. Avoiding Debt Traps One of the biggest benefits of financial literacy is that it can help you avoid debt traps. When you have a good understanding of financial concepts, you can make informed decisions about borrowing money, managing your debt, using credit cards. This can help you avoid high interest loans and credit card debt that can quickly spiral out of control. And we know that more than half of Americans are in that situation. And the first part of understanding your long term planning is your financial literacy. By understanding these concepts, you can create a plan for future that includes saving for retirement, buying a home, achieve other financial goals, whether that be with your kids, your family, or maybe your workplace. Financial literacy is essential for anyone that wants to take control of their goals. Retire early, retire on time for that matter, and just have a brighter financial future.
[00:03:01] Introduction to Personal Finance and the 50-20-30 Rule
[00:03:01] Conrad: So when it comes to personal finance, it’s important to have a basic understanding of how to manage your money, which includes knowing how to budget and save. So first we’ll talk about the 52,030 rule. Essentially, this is a very easy rule of thumb that people can use to budget. It’s a very popular budgeting technique that involves dividing your after tax income, which is your take home pay, into three primary categories 50% is to needs. This category includes essential expenses such as housing, utilities, food, transportation and other necessary expenses. 20% to savings and debt reduction. This category includes savings for retirement, emergency funds, and paying off debt. 30% to wants this category includes discretionary spending on nonessentials items such as entertainment, dining out, hobbies, travel, collectibles, video games all the things that you usually really like to do. The 50 2030 rule is simple, but it’s a flexible budgeting strategy that can help individuals kind of manage their budget at a very high level, but very easily.
[00:04:16] Understanding Emergency Funds
[00:04:16] Conrad: Next, we’ll need to know a little about emergency funds. An emergency fund is not a specific type of bank account. Instead, it’s just a large amount of money that you have saved up to deal with financial difficulties such as losing your job, paying for medical bills from a sudden injury, repairing your car, and the list goes on. This is how they’re typically used and how they’re typically implemented. Usually, you maintain a distinct savings account that is specifically intended just for your emergency fund. You aim to accumulate enough money in that account to cover your expenses for a period from three to six months. This should not include your emergency fund and your pay for regular expenses. You’re not going to be taking money out of your emergency fund to pay for food or anything like that. This is a separate account that’s kept in just in case for emergencies.
[00:05:09] Introduction to Financial Literacy: Credit Cards
[00:05:09] Conrad: It wouldn’t be a beginning lesson on financial literacy if we didn’t talk about credit cards. Credit cards are those old plastic, and now a lot of them are metal cards that allow you to borrow money from an issuer and then pay it back over time. If you don’t pay back the full amount each month, you’ll be charged interest on the remaining balance. Note that some credit cards, known as charge cards, require you to pay the balance in full every month, but they’re much more or less common. What’s the difference between a credit card and a debit card? Debit cards deduct money from your checking account without allowing you to borrow money or spend money that you do not have. Additionally, debit cards do not contribute to building your credit history or your credit rating. Credit cards enable you to borrow funds without withdrawing cash from your bank account, which can be useful for big, unforeseen expenses. However, if you carry a balance from one month to the next, meaning that you don’t completely repay the money borrowed, you will be charged interest by the credit card company. It is crucial to exercise caution when spending more than you can afford, as debt can accumulate very, very quickly and will be very tough to pay off. If you use your credit card responsibly and you pay your debts on time, you can build a good credit history and have a high credit score. Now this is important because having a high credit or a good credit rating will not only help you qualify for the best credit cards in the future, it also gives you access to lower rate interest on personal loans, auto loans, mortgages, et cetera.
[00:06:45] Understanding APR and Types of Credit Cards
[00:06:45] Conrad: Since we’re still talking about credit cards, we’re going to go over what Apr is. The annual percentage rate, or Apr, is an interest amount that you will owe on any balance that you leave unpaid to the credit card issuer. It is important to pay attention to this number while applying for a credit card, as a higher Apr can cost you significant amount of money if you have a large balance over time. Presently, the median Apr is around 23% to 30%, but if you have a poor credit rating, your rate may be higher. Additionally, interest rates differ based on the type of card that you’re using. So you might be wondering which kind of credit card should you use? You see all the videos and other recommendations online and they all have different types of rewards or cash back, and we’re going to go over that just briefly here. So if you don’t have a credit card and you have bad credit, you can improve your score by using a secured or subprime card and making timely payments. If you have a fair to good credit score, there are many credit card options available to you. Rewards cards for travel are credit cards where you can earn points for every dollar you spent. These points can be used to book flights, hotels, rental cars. If you don’t travel frequently or if you don’t want to bother redeeming points, then a cashback card may be the most suitable option for you. Each month you will have a small portion of the spending in either cash or a statement credit. I personally use a cashback credit card for my expenses. If you currently have a high interest balance on any of your credit cards, consider using a balance transfer for cards. To transfer these balances to one card to one with a lower interest rate. This can help you save money and pay off debt of your balance faster. Ultimately, you improve your credit score. If you’re in this situation, make sure you do consult an actual financial expert, or if you’re in this situation, make sure you figure out why you got into this situation before you do a balance transfer to try to get a lower interest rate and make sure you don’t make the same mistakes.
[00:09:02] Personal Finance Management Essentials
[00:09:02] Conrad: We’re going to go over budgeting now everybody’s favorite topic. Everybody gets told that they can’t buy their $5 coffee from Starbucks, and I personally don’t think that’s true. But it is somewhere where we do need to start. Make sure that we do know that we’re budgeting. So creating a monthly budget is an essential part of personal finance management. It helps you keep track of your income, your expenses, and ensures that you don’t overspend. To create a budget, start by listing all of your monthly expenses, including your rent, mortgage payments, utilities, groceries, transportation and any other bills that you have. Then you subtract them from your income to see how much money you have left over each month. Creating a budget is a crucial step in taking control of your finances. Here are some simple steps to help you get started. Track your income and Expenses start by recording your monthly income. Take all that in. Next, list all of your expenses, including your discretionary and fixed. Then determine your savings. Calculate the amount of money you’re able to save each month, whether it’s in cash or an investment retirement account. Subtract your expenses from your income, adjust your expenses and then start an emergency fund. That would be the overall high level budget plan. We’ll go on in later episodes to go more into detail. Saving and Investing There are key components of personal financial management. You have to take a savings account. Having a savings account is a great way to start building up an emergency fund, which can help you with unexpected expenses without going into debt. Additionally, investing your money in the stock market can also help you grow your wealth over time, but that’s a little bit more complex. So we’re going to just stick to making sure that we have a savings account for our emergency fund. A lot of them are quite high interest right now. I know that I have a savings account with 5% interest. Some real quick saving investing tips do set up a portion of your paycheck to automatically go into your investments and savings. Don’t leave a savings account as your last financial priority unless you have very high debt. We’re going to go for the debt first. Debt before the Savings managing Debt Managing debt is another important aspect of personal finance. If you have credit card debt, it’s important to make sure that you’re paying off your credit card bills on time and keeping your credit balance low. Credit card companies often charge high interest rates, which can quickly add up if you’re not careful. Additionally, if you have a mortgage and other loans, it’s important to make your monthly payments on time to avoid damaging your credit score. Managing your personal finance and debt requires a lot of discipline. Creating a monthly budget is a great start saving and investing wisely. After you do that and you’ll be well on your way to have a foundation for yourself in your future, we’re going to cover briefly investing in the stock market here in our Financial Literacy podcast.
[00:12:12] Understanding the Stock Market and How to Invest
[00:12:12] Conrad: So what is the stock market? The stock market is where people go to buy and sell stocks. Come on. But also it’s where you go to trade stuff like ETFs bonds, mutual funds and more. How do I invest in a broker to buy stocks? And there are three main ones to choose from a full service broker, an online discount broker and a robo advisor. They all have their pros and cons, so do some research and figure out which one is right for you. What should I invest in? The securities that you purchase and the amount that you invest will vary based upon your available funds and your willingness to accept risk. How do I invest? The securities you purchase and the amount you invest will vary based on your funds that you have available and your willingness to accept a risk. Stocks individual stocks are just shares or equity. They represent a partial ownership of a company and allow shareholders to receive a portion of that company’s assets and profits. If you own a stock, you can participate in voting during the shareholder meetings, receive dividends from the company’s profits, and sell your shares to another person at another time. But stock prices change frequently during the day, and they may be influenced by various factors such as a company’s performance, domestic and global economy, and current events. It’s important to note that stocks can either increase or decrease in value or become worthless. Due to these fluctuations, stocks can be considered more volatile and potentially more risky as compared to other forms of investments in the stock market. An example of an individual stock would be Apple. If you bought a share of Apple stock, you would then have a small piece of equity in that company.
[00:13:56] Introduction to Exchange Traded Funds (ETFs)
[00:13:56] Conrad: Next, we’re going to cover ETFs. ETF stands for Exchange Traded Fund, which is a collection of securities such as stocks. It usually follows an underlying index and can utilize different strategies while investing in an industry sector. An ETF can be visualized as a pie that holds a mix of various securities. By purchasing shares of an ETF, you are essentially getting a piece of that pie, which includes a small portion of securities that it holds. This allows you to invest in multiple stocks conveniently through a single purchase. The ETF ETFs share many similarities with mutual funds such as professional management and immediate diversification. Investing in ETFs is less risky than investing individual stocks.
[00:14:42] Banking Basics: Understanding Types of Bank Accounts and Using Debit and Credit Cards
[00:14:42] Conrad: Banking Basics when it comes to managing your money, having a bank or credit union account is essential. Not only does it provide a safe place to store your money, but it also makes it easier to manage your finances. In this section, we’re going to discuss the type of bank accounts and using credit and debit cards with those banks. Type of Banks There are several types of bank accounts to choose from, but most common are checking and saving Accounts a checking account is a deposit account that allows you to write checks, use a debit card, make purchases, and withdraw money from an ATM. A saving account, on the other hand, is designed to help you save money and earn interest on your balance. When choosing a bank or a credit union, it is important to consider the fees, the minimum balance requirements associated with each account, and some banks may charge monthly maintenance fees. Credit cards and debit cards are essential tools for managing your finances. A debit card allows you to access your funds in your checking account to make purchases or withdraw. And as we talked about earlier, a credit card, on the other hand, allows you to borrow money from the bank to make that purchase. Direct deposits is a convenient way to receive your paycheck from your job or your other income directly into your bank account. This eliminates the need to deposit a physical check or cash and allows you to access your funds more quickly. To set up a direct deposit, you will need to provide your employer or other income sources with your bank account information, including your account number and your routing number.
[00:16:15] Understanding Student Loan Debt and Repayment Options
[00:16:15] Conrad: We’re going to talk about student loans now. Understanding Student Loan Debt in Particular as we know, a lot of people in the United States have student loans and you must repay it and they all have interest. When you take out a student loan, you’ll be required to make regular payments to your lender. These payments will be based on the amount of money that you borrowed, the interest rate of the loan, and the length of their repayment period. There’s a bunch of different repayment options for student loans and we’ll go over some of the basic ones. Standard Repayment this is the most common, as the name implies, where you make fixed monthly payments over a set period of time. Graduated Repayment this plan starts with lower monthly payments and that gradually increase over time. Income Based Repayments this plan is based on your income and allows you to make lower monthly payments if your income is low. Pay as you Earn this plan is similar to the income based repayment, but your payments are capped at a certain percentage of your income. Income Contingent Repayment this plan is based on your income and family size and your payments are adjusted each year based on the changes in your income. It’s important to choose the repayment plan that works for you if you’re taking out a student loan. But remember that student loan debt is serious financial obligation and it’s important to understand the terms of your loan and your repayment options before you borrow. Student loans are not able to be expunged from you when you file for bankruptcy. After filing for bankruptcy, you will still have that student loan debt. So this is very, very critical to understand when you’re taking out student loans.
[00:17:50] Understanding Financial Literacy and Its Importance
[00:17:50] Conrad: One important aspect of the financial concept here is understanding your credit scores and your reports. I’m sure you’ve all seen Credit Karma and other reporting apps and agencies that have your score on there for you. Okay, so your credit report is a detailed summary of your credit history. It includes information about your credit card accounts, your other loans, your other credit cards, your mortgages, personal loans, as well as your payment history to those companies. Then the credit reporting agencies such as Equifax, Experian, and TransUnion, they collect all this information and they use it to calculate your credit score. This is important to review regularly to make sure that there’s nothing that you miss or that you’re having negative effects to your accounts that you do not know about. When reviewing your credit report, look for any errors and inaccuracies. Make sure that all your personal information is correct and check that all of the credit accounts are being reported accurately. If you find any errors, you can dispute them with the reporting agencies. And the bottom line is you’ve taken the first step now the Bottom Line you’ve taken the first step towards achieving financial literacy. By educating yourself on financial matters, you can now make informed decisions and take control of your money. Being financially literate means that you have the knowledge and skills to manage your finances, effectively, set goals, and achieve a financially stable life. We have all the resources needed on moneymainstreet.com. You can go ahead and head there if there’s anything that you wanted to have a deeper dive into. In the upcoming episodes, we’ll cover these topics in more detail and so you can stay tuned. Make sure to subscribe so you can hear when those episodes come out. You can go to YouTube Watch, you can go to Apple, you can go to Spotify, any of the podcasting networks, and you can go there and you can watch the Watch or you listen to the upcoming podcast.
[00:19:47] Conrad Discusses Savings Accounts and Investment Basics
[00:19:47] Conrad: Before I go, I have a couple of questions that we’ve got from social media I’m going to go over. And the first one is our bank safe? So the Federal Deposit Insurance Corporation, which is known as the FDIC, insures most bank accounts in the United States up to a certain limit. The current limit is $250,000 per depositor. So what that’s telling you is that if you have less than $250,000 in a bank account, call it bank of America, then you’re insured up to that amount safely. Recently, with recent events with banks, we’ve seen that the government would actually help banks and backstop for an even higher amount. But that’s just something to keep in mind. That’s the most accurate answer that we have right now. Is it safe to invest in the stock market? By investing in stocks, you are carrying a risk of losing your money if the prices decrease. Bet brokerage accounts are also insured for protection through their corporations, and they usually have a coverage up to $500,000 similar to the bank’s FDIC insurance. This would protect you not against the stock price going down, but against hacks people, stealing money from people’s accounts and stuff like that. As far as the stock market being safe with prices going down, historically over very long periods of time, the stock market has gone up. Investing in a broad market ETF like the S and P 500, with very low fees in your own personal investing accounts with you don’t even need a financial advisor, have made returns of approximately 10% over a lifetime. So that’s every year 10%. So that’s what you can look forward to if you were investing in that kind of style. And I have a question here that’s what’s the safest investment? There’s pretty much no investment that is the safest because they all carry some type of risk. That’s what an investment is. It’s something that’s carrying risk. It used to be and may still be, that it’s treasuries like bonds and bills and notes. And those are backed by the US government. So as you can imagine, something that’s backed by at least the current US government is quite stable. They’re not likely to let anything bad happen or default on people’s money as far as if you’re investing in the US government. Again, thank you for being here with this first episode, there’ll be more to come. Go ahead and you’ll see our socials. You can go and say hi, ask us questions, give us topics that we needed to cover and talk about, and make sure you follow me on Twitter at conrad golly. Anyways, have a good day and have good financial vibes.