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Top Personal Finance Lessons For 2021 and beyond. Here are ten great ways.

Worried about your personal finance? Join the club. The world’s never been in more debt than it today — a year of battling a global pandemic has left us all a little worse for wear. Financial literacy can empower you to do more with what you’ve got. Here’s how to make it all work.

One in five people are financially illiterate, incapable of understanding even the most basic of financial conundrums – their shopping. Say, is that box of 24 eggs better value than 2 one dozen boxes? In the face of a world full of increasingly more complicated financial products, it’s no surprise that corporations and companies are using our general ineptitude with regards to our personal finance to their advantage and taking us to the proverbial cleaners every opportunity they get.

A fascinating study on financial literacy was issued by the OECD (The Organisation for Economic Co- operation and Development) in 2017, assessing financial literacy world-over, using the same Pisa scoring system that’s used to rank math and English prowess. It was focused on 15-year-olds in 15 countries, so it’s not about adults, but for what it’s worth, we’d put good money on most peoples’ literacy not being much better at 50, either. It presented a few logic problems– comparing the cost of loose tomatoes with boxed ones, and checking an invoice for accuracy – but also explored more contemporary financial concerns, like the factors that go into insurance costs for a first new vehicle and differentiating between several different sorts of saving accounts.

What did we learn? Only the obvious. Compared with other skills assessed by the OECD, like problem solving, math and reading, money-management is something we’re not particularly gifted at — to say the least. Forget being abysmal at personal finance management, most of us probably don’t even want to think about what that might entail.

This is especially problematic given the ever-evolving nature and complexity of the 21st century free market economy. Whether you’re taking out your first loan, applying for a mortgage or putting money towards your retirement, we’re forced to make difficult decisions about our finances every single day. Add a hefty dose of financial illiteracy to the mix and you’ve got yourself a ticking-time-bomb waiting to blow up your life.

It’s high time we became better money managers and mastered out finances.

Smarter, more well-informed consumers making better financial decisions can only be a good thing for the economy. They’d be able to use their collective power and know-how to help keep financial institutions acting in their best interest — instead of the other way around. No more exploitative mortgages and liar loans. Plus, they’ll ask tougher questions of the people in charge making empty assurances about the economy.

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1. Understanding Credit And Debt Is The Key To Better Personal Financial Management

Welcome to your first lesson of personal finance 101: understanding how credit and debt work both for and against you. While a good measure of caution is, of course, advisable, it does you no good to be afraid of credit and debt.

Here’s a primer on the two most important aspects of understanding personal finance management:

  • Debt

Debt is like any other tool in your financial arsenal: extremely useful when used correctly. When misunderstood and misapplied, debt can spiral wildly out of control. Missing payments can adversely impact your credit score, and that can take years to recover from.

  • Credit Score

If you run from the slightest mention of a credit score, you’re not the only one. If this were an article about finances for kids, your credit score would be the monster under your bed.

But like most bogey-men, it’s far less scary up close.

Your credit score is the primary factor lenders use to gauge your trustworthiness and qualification for mortgages, auto loans, and other sorts of loans. Employers and landlords also look over your credit prior to renting or offering you a job.

2. Interest? What Interest?

Like debt and credit, interest can just as easily be made to work for you as it can tank your financial portfolio.

It’s simpler than you think: when you take out a loan with an interest rate, it’s working against you, but when you invest early and make use of compound interest, it’s working for you.

  • Compound Interest

When you’ve got an account that’s collecting interest, the interest earned gets added to the principal. Then, interest is earned on the new, larger principal, and the cycle repeats itself to profit. That’s all there really is to personal finance for beginners.

interest rates are important

  1. Trying To Wrap Your Head Round Your Home Finances? Master The Value Of Time A wise man once said: “It’s never to early to open a saving’s account.” Time is of the essence: the earlier you start, the better. The sooner you begin putting money towards your retirement, the larger your return.
  • Cindy vs. Charlie

Take, for example, the case of Cindy and Charlie, who will each invest a total of $100,000. Cindy starts right away, depositing $10,000 a year at a hypothetical 6% rate of return. After 10 years, Cindy stops making deposits. Charlie, on the other hand, waits 10 years before starting to invest. He also puts

$10,000 a year away for 10 years, at the same hypothetical rate as Cindy. After 20 years, who has more money? Cindy, of course, whose balance is nearly twice as big as Charlie’s, because all of the extra time her investment returns had to compound.

4. Welcome To Inflation

In classic economic terms, inflation isn’t necessarily bad. Or, not bad for everyone. Borrowers don’t usually mind inflation because, so long as interest rates don’t skyrocket, inflation lowers the cost of their debt. But inflation does eat away at the buying power of money, so unless wages rise in tandem with inflation, people become worse off.

Here’s some things to consider when thinking about inflation:

  • Cash in a Mattress

Unfortunately, despite what you’d think, this does bear mentioning — hoarding all your cash under a mattress like some sort of modern-day dragon isn’t just hugely risky and unsafe: it’s costing you money. Stop taking “home finances” so literally. Assuming the rate of inflation is a hypothetical 2%, every dollar you’re sticking under there is shrinking in value to the tune of two cents a year.

  • Rate of Return

As inflation reduces the buying power of your money, any returns you earn on your accounts may not be the “actual” rate of return. If your account earned a hypothetical 6% rate of return over the last year, but inflation was 1.5%, your real rate of return was really 4.5%.

5. Protect Your Identity

A lost Social Security Number or cracked password could quickly turn into a nightmare with disastrous consequences for your personal finance management plan.

  • You should be using a password manager

While using a unique password for every site and service you use can seem like an undue hassle, using a password manager can make it a lot easier by generating and storing passwords until you need them, so you never have to worry about forgetting again.


6. Make Every Financial Win Count; However Small

The fact is, there are probably tons of things you could be doing better with regards to your personal finance management. Maybe you’re trying to create a budget, put money towards your retirement and pay off your student loans, all while barely certain you can manage one of those things.

Don’t let being intimidated and overwhelmed frighten you into taking no action. Look for something simple you’ve been meaning to take care of for a while and deal with that, first. Maybe you’ve got some small but mounting credit card debt you could pay off. Or maybe you’ve never actually taken a moment to sit down and put together a solid, working budget. You need to secure a quick win — something you can make happen in a month or less. This’ll go a long way towards minimizing any lingering stress and help you make bigger financial moves next.

7. Find A Way To Up Your Income By $5000 This Year

What’s the easiest way to meet (and exceed!) your goals for your personal financial budget in 2021? Make more money, of course. $5,000 is a solid enough sum to really make a sizeable difference. If that sounds a little too outlandish, think of it this way: it’s under $100 per week.

There are two ways to increase your income: get paid more at your current job or begin operating a side hustle.

Got an annual performance review looming on the horizon? Planning on switching jobs? Now’s a great time to re-negotiate your take-home. You should be looking at a raise of at least 3-5% if you’re staying with a company, but you can often see a salary bump of 10 to 25 percent (or more) if you move elsewhere. There’s nothing quite so nerve-wracking as asking an employer for more money but the few extra thousand dollars in your pocket will make it more than worth it.

Likewise, finding an extra income stream can take a little, or a lot of grinding, but good personal finance management and financial security is a process. It might look like picking up a couple extra shifts at a coffee shop on the weekends or exploring the world of freelance — so long as it makes you $100 dollars a week.

Even if you can’t augment your income by a whole $5,000 in 2021, even an extra $3500 is nothing to scoff at.

8. Are You Contributing To A TFSA? You Should Be

A Tax Free Savings Account (TFSA) is a registered investment or savings account that allows for tax free gain.

When you’re struggling under the weight of a mountain of loans, it can be too easy to simply forgo saving for retirement — but don’t make that mistake. Despite the fact that it might seem futile to put away for the long-term when your loans seem to eat up the entirety of your paycheck.

But you can’t afford to put your retirement off.

If you don’t already have one (better late than never!) it’s time to open a TFSA. TFSAS are the soundest long-term investment out there, but you’re probably not using it correctly, if you’re taking advantage of it at all. Because all the interest, dividends and capital gains in the TFSA are completely tax-free, it beats out pretty much every other retirement savings plan out there.

And while, yes, you can use it to fund a vacation or rainy-day fund, that pretty much amounts to wasting its tax-free power.


9. Draw Up A Better Personal Finance Budget

First thing’s first: look at your paycheck and expenses, and draw up a budget plan for yourself. (See next weeks article for our journal)

A good personal finance budget is founded on a solid understanding of how much you’re bringing in and what your monthly expenses are.

You’ll need to take a good long look at your income on your pay-stubs (after taxes) and calculate the average earnings from side gigs or elsewhere. You’ll also need to be honest about your expenses — often the hardest part of financial planning for beginners.

Start by putting together a list of your baseline expenses (like your rent or mortgage, insurance, utilities, etc). Often you’ll find something you’ve mistakenly overlooked. In order to really account for all of this, you’re going to need a record of at least 6 months-worth of bank and credit card statements. You’re working towards ensuring your expenses fall well under your paycheck and that you’ve left yourself plenty of leeway to pay off debt, save and invest in you.

10. Prepare For A Sudden Drop In Or Loss Of Salary

Nobody wants to think about the possibility of being made redundant, but if there’s one thing 2020’s taught us, it’s that often the best we can hope for is to avoid the worst.

First thing’s worth: know your rights. Your employer is obliged by law to consult you prior to redundancy and provide you with due notice. Moreover, they’ve got to pay for any remaining sick days/leaves/holidays and proffer alternatives to redundancy alongside maintaining fair, non- discriminatory practices.

It’s important to note that you’re also duly entitled to redundancy payments based on your full pay, not your furloughed wages.

This article is for information purposes only, it should not be considered financial or legal advice. Consult a financial professional before making any major financial decisions.

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