A Complete Beginner's Guide to Personal Finance

There’s a perfectly good reason as to why personal finance isn’t taught in schools:

It’s too valuable. Think about it for a second…

How many things we see on a daily basis would cease to exist if people knew how to handle their money?

The world needs people who don’t have a clue what to do with their money.

Why?

To keep them working longer, and contributing more to the economy.

But, the good news for you is that you can go out of your way to make changes for yourself, so you can retire at 45, and not 65.

Reading this is a start.

So, here is a complete beginners guide on personal finance, understanding financial literacy, and what I like to call “The Cycle of Money”.

The Cycle of Money

Money, or “fiat currency”, to give it it’s proper name, is never meant to be kept in one place, and is always on the move.

It comes into our lives, and it goes out.

As well as how much you make, what you do with the money that comes in is crucial to your future financial well-being.

The Cycle of Money is a simple, 3-step cycle on how a person deals with money:

1. Earning — money comes in.

2. Spending — money goes out.

3. Investing/Saving — money stays.

Pretty simple, right?

You earn money. You spend money. You invest money.

So, if you’re on a mission to build wealth for your future and achieve financial freedom, it’s your aim to make:

1. Earning — As high as possible.

2. Spending — Technically as low as possible, but you must consider quality of life/mental health.

3. Investing — As high as possible.

Earning

Earning, or otherwise known as income, is the first step of the cycle, and simply means money coming into your possession.

The more this is, the more chance you’ll have a:

• Better lifestyle.

• Less stress and greater peace of mind.

• More options.

There’s zero reason why you shouldn’t be aiming to increase your income when on a path to financial freedom.

And to do that, you have to open up multiple streams of income.

For most people, the number of income streams you have, is 1: your salary.

That’s fine, but when you want to level up your finances, it’s worth investing some time into opening up a few more so you can… increase your earnings.

Here are the 7 core income types that you can start working on today:

Earned income

The most popular form of income, in the form of a salary. The vast majority of people are here. You can still work on increasing this by working for a promotion, or to consider job hopping to grow your salary.

Example: working for a job promotion to increase your salary.

Profit income

Money made through business by selling a product or a service… for a profit. In 2024, anyone can start their own small business and start selling online.

Example: starting a small online business, and selling a low-ticket digital product which solves a specific problem.

Interest income

Even with the thought of inflation, you can still earn interest on your cash as a small income stream. Keep an eye on your region’s interest rates, and the best yield available to you.

Example: switching banks or opening up a high-yield savings account which you can keep your emergency fund in.

Dividend income

Getting paid by being a shareholder in a company. The perfect way to earn an income whilst doing no work.

Example: investing each month into a few dividend stocks which pay you monthly or quarterly just for being an investor.

Rental income

Investing in real estate is a great way to convert cash, into cash-flow through property. Although, real estate can be time consuming and the financial barriers to entry are much higher than others.

Example: grouping together with some friends to buy a property and rent it out for a share of the monthly income.

Capital gains income

Earning through the appreciation of assets such as stocks & ETFs. There are a few tax free programs available for this type of investing. Make sure you’re taking advantage.

Example: invest into some growth stocks or ETFs which will appreciate over time and grow your wealth.

Royalty income

A more obscure income stream. A commission based income which involves designing, building, or making something unique and charging people and businesses to use it. Music is a great example.

Example: buy or own a trademark, and get paid every time a person or business wants to use the trademark for commercial use.

To help you work on building more income streams, I’ve narrowed down the options for you…

Little work involved:

• Interest income — get any savings or emergency fund into the highest yield account available to you.

• Dividend income — find some dividend stocks or ETFs that you like, and put some of your disposable income here each month.

• Capital gains income — find some growth stocks or ETFs that you like, and put some of your disposable income here each month too.

More work involved:

• Profit income — this is the income stream with the biggest potential, so I’d focus your work here.

The more time you have to invest towards increasing your income, the better.

Spending

Although your income is important, what’s even more important is what you’re doing with your money.

• Someone who earns $8,000 and spends $8,000, can’t build wealth.

• Someone who earns $5,000 and spends $4,000, can.

Here are some key things to consider when tackling the spending part of the money cycle:

Budgeting

A budget is a method used in finance to track a person’s overall finances on a monthly basis.

• Income

• Expenses

• Savings

And more.

They’re used to help people gain a better understanding of where you’re spending your money, and how to increase your disposable income each month, by either increasing your income, or reducing your expenses.

They’re not the most glamorous thing to do, but they are useful, and can be significant in ensuring financial discipline whilst building wealth and walking the path to financial freedom.

You can create a budget anywhere you like. It’s up to you:

• Excel sheet.

• Pen and paper.

• Online budget template.

Debt

Debt is the killer of wealth building and financial success, especially when it’s:

• Not getting paid off.

• Compounding it’s interest to make you owe more and more.

• Normalised to the point where you’re in the minority if you’re debt free.

It’s a serious burden to your financial future, and is something that you should pay more attention to if you’re trying to build your wealth.

But, like most things, where there is a problem, there is a solution, or several, in fact.

Now, your mortgage, for example, is something that you’re not going to be able to pay off in the short term which is what we’re trying to help with here.

Emergency Fund

When you’re trying to improve your financial situation, there’s a high chance that you’ll be experiencing some form of financial risk for the first time:

• Investing.

• Starting a business.

A great thing to have would be an emergency fund, which is simply a savings pot that you can access in a hurry, in case of any unexpected expenses, or loss of income:

• Redundancy.

• Water leak.

• Broken down car.

It also help you sleep better at night, knowing you’ve got a nice chunk of cash to fall back on, in case you need it.

This peace of mind, was the biggest benefit I saw of building an emergency fund.

A lot of finance planners will suggest you save between 3–6 months of your monthly expenses, in an emergency fund, in case of an unforeseen expense.

Disposable Income

Disposable income is the amount of money you have left each month, after all of your expenses have been paid.

It’s a simple calculation:

Income — Expenses = Disposable Income

The greater this number is, the better your chances are of having a more affluent future.

Living below your means is the greatest cheat code in personal finance, and you can get years ahead of your peers simply by prioritising your disposable income.

Sure, it comes at a cost, but, who tries to achieve financial freedom without an element of sacrifice along the way?

It’s simple concept, but for most, a hard thing to adjust to over a long period of time.

The lack of financial education has led to a lack of understanding about the true value & power of money. As a result of this, for the average person, once they earn money, they spend it.

Their percentage is 100%, or near enough, and backed up by my money graph, those who are more financially educated, are more likely to increase their disposable income, and become more affluent.

Investing

Investing, even in 2024, is something that not enough people do, and I’m on a mission to start helping people to invest.

Inflation has crippled the poorer people in society over the past few years, and there’s a significant cost crisis as a result.

Not only this, but people’s savings have been devalued significantly. As consumer goods get more expensive, you’re not able to continue to afford the same as before.

The solution? You’ve got to invest your money into assets.

• Cash is great because of it’s versatility and it’s ability for us to buy things with it.

• Cash isn’t great because you can’t build wealth with it.

So, if you’re on a mission to grow your wealth with your disposable income, here are some alternatives:

Stocks

Owning stock means owning shares in a company that is publicly traded on the stock market.

As someone who owns Apple “stock”, I am an official Apple shareholder, and own shares (albeit not many) in Apple.

In the stock market, you can buy shares, or “stock” in any company that is publicly traded, and available to invest into in your region.

Some of the biggest public companies include:

• Apple ($AAPL)

• Amazon ($AMZN)

• Microsoft ($MSFT)

• Google ($GOOG)

• Tesla ($TSLA)

And more.

When people first think of investing, they tend to think of stocks, as it is the most popular way to invest your money, especially as a beginner.

It’s cheap, profitable, and super easy nowadays.

With a few clicks on your phone, you could be a shareholder in some of the biggest companies on the globe.

Exchange Traded Funds

An ETF, or Exchange Traded Fund, is a stock market fund which tracks a specific asset, or index.

It’s a brilliant invention, which helps retail investors invest without the aggro and hassle of having to spend time researching individual stocks, or keeping up to date with everything that’s going on.

Typically, retail investors can invest into an ETF which tracks the entire stock market, and see a healthy 8–10% return on their money, in exchange for a small management fee.

You can also buy ETFs which track the prices of:

• Gold

• Oil

• Semiconductors

• Foreign markets

All without having to buy the real thing. They simply track the price.

It’s investing made easy, and although sometimes it can seem too good to be true, it really isn’t.

Real Estate

The barriers to entry for real estate are much higher than any of the other asset classes here, but there’s no denying that Real Estate has helped investors build wealth for generations, both through:

• Asset appreciation — the value of real estate properties going up.

• Income — receiving rent payments from tenants.

There are a couple of different ways that you can put your disposable income towards real estate investing:

• Buying properties — The most unlikely option given how expensive they are, but if you do have a lot of cash lying around gathering dust, it’s a great way to exchange cash for an asset, which provides you with a nice monthly income.

• Bank loan — get a mortgage like any other homeowner, and rent out the property to someone who may not be accepted for a mortgage, and pocket the difference between the mortgage payments and the amount you’re charging for rent. Probably not the best option today considering the current interest rates on mortgages, but still worth considering.

• REITs — like an ETF, a Real Estate Investment Trust allows you to join forces with other real estate investors, to invest into a trust that will use your money to invest in real estate. You will then own a portion of said trust which tracks the price/value of your investment(s).

Despite having high barriers to entry, and being significantly more illiquid than any of these other asset classes, Real Estate is proven to be one of, if not the best asset class for you to build wealth in.

Cryptocurrency

A cryptocurrency is a digital currency, in which transactions are verified and records maintained by a decentralised system using cryptography, rather than by a centralised authority.

When you compare a cryptocurrency to a regular fiat currency, the key difference is that its technology (Blockchain) enables it to operate without a central bank, like the Federal Reserve or Bank of England.

This is called decentralisation, or decentralised finance (DeFi) and it’s one of the reasons why cryptocurrency has become so popular since the first cryptocurrency, Bitcoin, was created in 2008.

Since 2008, thousands of cryptocurrency assets have been created.

Some provide great value and solve complex problems, whilst others do nothing but take the money of naive investors.

This is why it’s important to have a certain level of knowledge before you begin to invest into the cryptocurrency market.

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