You like it or not, you will be forced to manage your money. If you like it, then it will be fun. If you don’t manage it, then your life may become miserable. Money is important. This miniguide will help you to understand and implement budgeting, manage finances and invest your money.
1.
Budgeting & Saving
What’s a
Budget? It is a
plan to manage your income, expenses, and savings. It helps you avoid
overspending, reduce debt, and achieve financial goals.
Start
using 50/30/20 Rule
50%
Needs: Essentials
like rent, groceries, and transportation.
30%
Wants:
Non-essentials like dining out or entertainment.
20%
Savings: Emergency
fund, big purchases, or retirement.
How to
cut Needs?
Rent: Downsize or negotiate lease terms.
Utilities/Phone/Internet: Search and shop for better deals.
Groceries: Buy in bulk, choose discounts, and
compare per-unit prices.
Why you
need to Save?
You don’t
know what is expecting you in the future and probably you have big needs and
goals like these:
3-6 months
of expenses for unexpected events à Emergency Fund, create it by
saving.
You want to
buy a car, house, or other goals à Big Purchases, create it by
saving.
Invest in
long-term growth à Retirement, again, you can create investment
money by saving.
Advice: Set up separate savings accounts for specific goals and automate
deposits. Compare accounts for fees, access, and interest rates (typically low,
~2-3%).
2.
Financial Goals
Know
Your Money Personality
Take an online
quiz to identify your style, your personality may fit into one of these
categories:
Spender: Loves spending, may struggle to
save.
Balancer: Manages well but can be overly
cautious.
Saver: Great at saving but may neglect
wants.
Investor: Risk-taker aiming to grow wealth.
Set
SMART Goals
Make goals Specific, Measurable, Achievable, Realistic, and Time-bound.
Example: “Save $100,000 for a house down payment by age 30.”
Goal
Types
Short-Term
(<1 year):
Emergency fund, small debts, or gadgets. Save in a bank account.
Medium-Term
(1-5 years): Car,
college, or house. Use high-yield savings or low-risk investments.
Long-Term
(5+ years):
Retirement or legacy. Invest in stocks, bonds, or retirement accounts.
Financial Plan
Once you
have formulated your financial goals, then you can come up with financial plan.
Your financial plan may consist of the following things:
Budget: Track income and expenses, set and
try not to go beyond average expense limits.
Debt
Repayment:
Prioritize paying off debts if you have any, pay back everything asap.
Savings
Plan: Allocate
money for each goal, you can do it gradually.
Investment
Plan: Grow wealth
for long-term goals, this also can be done gradually with patience.
Improve
your Net Worth
Net worth –
total value of everything you own (cash, house, car, investments) – minus everything
you owe (debts, credits, loans, mortgage). It is a snapshot of your financial
health. Aim for positive net worth as you age – be wealthy and have no debts to
anyone.
3. Loans
& Debt
What’s a
Loan? Borrowed
money repaid with interest. It might be useful for big purchases like a house
or education. Avoid and minimize them in your life if it’s possible. If there are
no other options, then think carefully before taking loans.
Loan
Types
Installment
Credit: Fixed
payments for large sums (e.g., car loans). Lower risk, rigid terms.
Revolving
Credit: Flexible
borrowing (e.g., credit cards). Convenient but risky if mismanaged.
Payday
Loans: Avoid these
due to high APRs (300-800%).
Good: Loans for future wealth (e.g.,
business, home).
Bad: Debt from overspending (e.g.,
credit card debt).
Key
Factors that influence Loan Approval
Income, job history, credit score, debt-to-income ratio, and collateral (e.g.,
house for a mortgage).
Debt
Repayment
Prioritize high-interest debt, pay them first if you can, if not then try to
close small debts first then come back to it when you pay up all small debts.
If you live
in country where credit score system works, then read this. If not, then move
on to other paragraphs.
What’s a
Credit Score? The
number between 300-850 that shows your ability to pay bills on time.
High
700s-800s: Great
for loans, low rates.
600-700: Decent, higher rates.
Below
600: Poor, may face
denials.
Factors Affecting Scores
Payment
History (35%): Pay
bills on time.
Credit
Utilization (30%):
Keep credit use low (e.g., <10% of limit).
Credit
History (15%):
Longer history boosts scores.
Credit
Types (10%): Mix of
credit types helps.
New
Inquiries (10%):
Limit new credit applications.
How to improve
Your Score?
Pay on time, reduce credit use, and check your score regularly.
Credit Cards
Benefits: Build credit, earn rewards.
Risks: High interest if balances aren’t
paid in full.
Schumer’s
Box: Details APR
and grace period. Pay in full to avoid interest.
5.
Insurance
Why do
you need insurance?
It reduces financial risk from unexpected events.
Avoid
Risk: Take
preventive steps (e.g., safe driving).
Transfer
Risk: Buy insurance
to shift costs to insurers.
Common
Types of Insurance
Medical, property, car, and life insurance.
Advice: Get insurance before you need it.
6.
Investing & Retirement
Saving
vs. Investing, which is better?
Saving: Safe, low-risk storage (e.g., bank
accounts, CDs). Best for emergencies or short-term goals.
Investing: Higher-risk assets (e.g., stocks,
bonds) for growth. Best for medium/long-term goals.
Compound
Interest
Money grows exponentially as interest earns interest. Start early for maximum
growth. If you live in Islamic country, then this may not fit you, look up other
options to save and increase your finances.
Investment
Types
Low Risk: Bonds, treasury bills (~2-3%
return).
Moderate
Risk: Mutual/index
funds (~6-7% after inflation).
High
Risk: Stocks,
crypto (volatile, high potential).
Retirement Accounts
The
information below mostly applies to USA, if you live in other countries, then search
your country’s retirement/pension system from government or financial
institution websites.
401K: Employer plan with possible
matching.
IRA/Roth
IRA: Individual
accounts with tax benefits.
Social
Security: Limited
government support.
7. Scams
& Frauds
What are
scams and frauds? Deceptive
schemes where someone tricks you into giving away our money other assets.
How to avoid
them?
If some
offer sounds too good to be true, it is.
Never share
personal info (e.g., Social Security Number) with anyone.
Watch for emotional manipulation.
Balance
caution with openness to real opportunities.
8. Taxes
Learn, optimize
and pay taxes to avoid problems with law.
Types of Taxes
Flat: Same rate for all (e.g., sales
tax).
Progressive: Higher earners pay more (e.g.,
income tax).
Tax Benefits
Deductibles: Reduce taxable income.
Credits: Lower tax owed directly.
9.
Education & Careers
Education
Costs
Include tuition, books, fees, and living expenses. Explore financial aid,
grants, or scholarships.
Opportunity
Cost
Postgraduate degrees cost time and lost income. Research salary outcomes before
committing.
Advice: Talk to graduates or professionals
in your desired field for real-world insights.
10.
Banking
How
Banks Work?
Banks earn by lending deposits at higher rates than they pay you.
Bank Types
National
Banks: Secure, low
rates.
Regional
Banks: Better
rates, local focus.
Credit
Unions:
Member-owned, high savings rates.
Online
Banks: High rates,
low fees, some risks.
Account Types
Checking: Daily use, low/no interest.
Savings: Higher interest, restricted
access.
CDs/GICs: High interest, locked terms.
Investment
Accounts: For
stocks, retirement.
Inflation
If savings/investment returns are below inflation, your money loses value.
11. Car
Buying
Watch for
scams and hidden fees. Research thoroughly to avoid financial traps.
12.
Renting vs. Buying a Home
Costs to
Compare
Buying: Mortgage interest, taxes, upkeep.
Renting: Monthly rent, but you can invest
down payment elsewhere.
Other
Factors
Consider stability, homeownership desires, and personal preferences. Renting
may be better than buying in some cases.
