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Personal finance is a unique topic in the sense that you will get screwed if you don’t understand it.
This doesn’t hold true for most topics. Not understanding architecture, chemistry, engineering, or botany probably won’t hurt you.
You can merrily go through your day without understanding the algorithms underlying traffic lights, how your liver converts stored glycogen into glucose, how nuclear power grids function, or the intricate details of photosynthesis.
Your ignorance in all of these topics won’t impact your quality of life.
Unfortunately, this doesn’t hold true for personal finance.
If you don’t understand how compound interest works, you might make the mistake of waiting until you’re older to invest.
If you don’t understand the benefits of contributing to a 401(k), you might miss out on tax savings and free money from your employer.
If you don’t understand the nature of individual stock returns, you might mistakenly think you can earn above-average investment returns by actively trading stocks.
If you don’t understand the impact of investment fees, you might lose out on hundreds of thousands of dollars over your lifetime by paying excessive fees to money managers.
See, personal finance has a direct impact on your life.
Vicki Robin, co-author of Your Money or Your Life, says “Money is something we choose to trade our life energy for.”
Without understanding the basics of personal finance, money will always slip through your fingers. You’ll have to keep spending life energy to accumulate more. Life energy that you could instead spend on traveling, spending time with family, and having more experiences.
This is why you should learn the basics.
You don’t have to become an expert, you just need an elementary understanding of how to save and grow your money so you don’t screw yourself financially.
That’s why, for only $9.99 per month, I’m offering financial coaching…just kidding. Everything you need to learn about personal finance can be found online for free.
For a wonderful overview of investing and how the stock market works, I recommend the Stock Series by Jim Collins and the Investment Workshop by Millennial Revolution. Both are completely free and incredibly thorough.
In fact, these two series are the reason I will probably never write my own. They’re so detailed and well-written, I don’t feel that I could add anything more to them.
To learn the basics of compound interest, debt, loans, and other core financial topics, I recommend the Khan Academy Finance Course. It’s the course that got me up and running quickly when I first became interested in personal finance. It’s also completely free.
If you want to take it one step further, start reading personal finance blogs on a regular basis. A nice place to discover these blogs is Collecting Wisdom, a site I created that collects the best personal finance articles from around the web.
A little financial education goes a long way. Learn the basics and benefit for life.
Zach is the author behind Four Pillar Freedom, a blog that teaches you how to build wealth and gain freedom in life.
He quit his day job as a data scientist in 2019 because he was able to earn enough income from profitable websites to replace his salary. He now teaches people how to start and grow their own profitable websites from scratch in the Income Community.
Zach's favorite free financial tool he's been using since 2015 to manage his net worth is Personal Capital. Each month he uses their free Investment Checkup tool and Retirement Planner to track his investments and ensure that he's on the fast track to financial freedom.
His favorite investment platform is M1 Finance, a site that allows him to build a custom portfolio of stocks for free, has no trading or maintenance fees, and even allows him to set up automated target-allocated investments.
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Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.
What’s really unfortunate is that most people don’t realize this. Or understand how easy it actually is.
In the US, our tax laws are incredibly complex. But you don’t need to understand the ins and outs of the new tax bill to get by in life. You don’t NEED to understand a lot – just a few basic, fundamental concepts, and then adjust your behavior to align to those.
It’s easy, but I think people consider it too daunting to learn about. 🙁 Not the case at all!
Great point, Dave – you don’t need to understand all the intricate details, when just knowing the basics will take you a long way. It’s like the 80/20 rule – you can learn 80% in 20% of the time.
Even if you use the services of a professional accountant or financial advisor, it does indeed help to know the basics. You are, after all, ultimately responsible for your own financial future.
Agreed! It’s fine to ask for help, but at least know the basics so you don’t get taken advantage of.
I can go merrily thru the day without understanding the algorithms controlling traffic lights or how my internal organs function, LMAO! That’s funny. You are so spot on with the article; everyone needs to understand Finance.
This is sort of related but not really; funny story though. My 17-year old daughter called me a few days ago in the middle of the afternoon, asking me how to add air to her tires (shame on me for failing to instruct my children on proper maintenance beyond having their oil changed regularly!). I recommended she stop by a Discount Tire and have one of the attendants assist her. Suddenly I heard a male voice in the background. I asked if she was with anyone, she said she was with her friend, Wade. I told her to have him add air to her tires (he’s also 17). She informed me that he didn’t know how to do it.
My response to her, “Honey, I’m frightened for the youth of Today!”
MrFIREby2023
https://firechecklist.net
Haha thanks for the feedback, Kirk! Luckily your daughter is still young enough to learn the basics of personal finance and experience the benefits for decades to come!
Preach FPF! I’m always saddened to see my peers make horrible financial decisions simply because they won’t take the time to understand the basic principles of personal finance and moreover, make it something they value. You truly can’t learn these things early enough!
The earlier you learn these lessons the better! Makes for more time to let positive money habits compound 🙂
I have major compound interest FOMO on behalf of my friends who haven’t figured out their investments yet. Lately, I’ve been recommending Minafi’s minimal investor course (free email series.) The main obstacle for people getting started is it’s just so overwhelming and Adam does a great job of simplifying. Don’t let all these other great resources stop you from creating your own, though! You have a unique visual style that helps clarify complex topics.
Thanks for the recommendation! Adam definitely has some great content around personal finance basics as well. I think as long as you start somewhere, that’s all that matters. Over time, you can figure out the details as you go 🙂
It always boggles my mind that personal finance isn’t taught in school and that people will spend 40-80 hours per week working to earn money, yet won’t spend an hour per week learning about how to manage it well.
This. And do not forget the other two areas in life where you are screwed if you do not have at least a basic understanding: relationships and health. It is incredible and devastating what errors can be done in your partnership or when blindly following your doctor’s advice. It is ok to read a book or blog about e.g. communication or medicine 😉
Yeap, those are the top 3 things in life. If you get health, relationship, and money right, you are set. They all take a lot of effort, but the pay off is worth it.
Personal finance in particular, can be a long road. I’m still learning something new every day.
Completely agree with you. Health, relationships, and finance are the big three areas to master in life. If you can master those three, you’re pretty much set. Thanks for the feedback, Lejero 🙂
Totally agree with this…
Interesting story…I have a good friend that I try to talk finance with and every time I do his eyes glaze over and he complains about not knowing anything or not having that skill set (which is such a limiting belief that’s crippling him in other areas of life, but that’s another story).
I’m not sure what he’s thinking as I always tell him I didn’t know anything either and didn’t take classes or didn’t major in anything remotely close to finance, but I realized early that this personal finance stuff matters, so I took the time and effort to learn. Sadly he still plays the helpless card, but I’ll keep trying. Conversely I have another friend who upon hearing me talk about personal finances was super enthusiastic to learn about it and I sent him the Jim Collins Stock series link and actually helped him sign up for an Etrade account over the phone, so at least I can help one guy.
There are sadly SO many people who play the “helpless card” and just make up their minds that finance is too hard to understand. It’s amazing how simple it can be to learn the basics, though, once you sit down and read about it a little. Even knowing the basics can have a massive impact on your life. Good for you for recommending the Stock Series to a friend and helping him get set up on Etrade 🙂
Well done. Nicely thought out and put into words.
I would add learning basic tax rules to your list. The money saved by aggressive tax planning is “found” money, and the return is annual, once the practice is learned. A perfect, current example is the MAGI threshold for receiving Obamacare tax subsidies. By not managing income, tax credits of thousands of dollars a year can be lost.
Ignorance may be bliss, but it is a financial planning disaster.
Great point, Bruce. Learning the basics of taxes can save you quite a bit of money as well.