Beginners Guide To Personal Finance (Learn How To Build Wealth)

Summary

In this comprehensive video, Joshua covers a wide range of topics essential for personal finance, aiming to equip viewers with knowledge that surpasses 99% of the population. He emphasizes the importance of saving money and establishing an emergency fund, as well as the significance of budgeting to generate more income rather than just balancing expenses. Joshua introduces the concept of a personal financial statement, distinguishing between assets and liabilities, and encourages viewers to invest in income-producing assets. He also discusses various investment types, including stocks, bonds, index funds, ETFs, real estate, and cryptocurrency, and outlines the process of opening investment accounts with recommended brokers. The video touches on the necessity of understanding credit scores and how they are calculated, providing tips for improvement. Joshua further explores the use of credit cards, the difference between various types of cards, and strategies to avoid credit card debt. He concludes with a discussion on bank accounts, highlighting the benefits of high-yield savings and money market accounts, and briefly touches on the inevitability of taxes, tax brackets, and the use of free software for filing taxes. The video is a treasure trove of financial advice, designed to empower viewers to take control of their financial future.

Takeaways

• 💰 Saving money is crucial for personal finance as it provides options and leverage, and every dollar saved should have a clear purpose.
• 🚑 Establishing an emergency fund is recommended to cover unexpected expenses and avoid debt, with at least three months' worth of living expenses.
• 🎯 Budgeting should focus on wealth building, not just balancing income and expenses, by paying yourself first and investing in assets.
• 🏦 Understanding the difference between assets and liabilities is key to financial health, with assets putting money in your pocket and liabilities taking it out.
• 📈 Investing is an essential part of personal finance for wealth creation, with options including stocks, bonds, index funds, ETFs, real estate, and cryptocurrency.
• 💼 Starting a business or side hustle can accelerate wealth building compared to relying solely on a traditional job.
• 🏦 Different types of investment accounts, such as standard brokerage, retirement, education, and custodial accounts, serve various financial goals and come with different tax benefits.
• 🏆 A good credit score is vital for accessing loans, credit cards, and even renting an apartment, and is calculated based on payment history, credit utilization, length of credit history, types of credit, and new credit.
• 💳 Using credit cards responsibly can provide rewards and benefits without incurring debt, and it's important to pay off the balance in full each month.
• 🏦 High yield savings and money market accounts offer higher interest rates than traditional savings accounts, making them better options for saving money.
• 💼 Tax brackets and filing can be complex, but free software can simplify the process for simple tax returns, and hiring a CPA is advisable for more complex financial situations.

Q & A

What is the main goal of the video on personal finance?

The main goal of the video is to provide viewers with comprehensive knowledge about personal finance, aiming to have them walk away with more knowledge than 99% of people, enabling them to make significantly better financial decisions and achieve financial independence.

Why is saving money considered the most important part of personal finance?

Saving money is considered the most important part of personal finance because regardless of how much money one makes, without saving, one cannot accumulate wealth or have financial security. It provides options and leverage for future investments.

What is an emergency fund and why is it recommended to have one?

An emergency fund is money set aside for unforeseen circumstances such as car breakdowns, household repairs, or job loss. It is recommended because it provides a financial safety net, preventing the need to take on debt or scramble for funds during emergencies.

What is the recommended minimum for an emergency fund?

The recommended minimum for an emergency fund is at least three months' worth of living expenses. However, starting with a smaller amount, like $1,000, is suggested for those who find it challenging to save a larger sum initially.

What is the key difference between how wealthy people budget their money compared to others?

Wealthy people budget their money with the intention of generating more income and expanding their means, rather than just balancing their income with expenses. They pay themselves first by investing a percentage of their income and use a personal financial statement to track their assets and liabilities.

What are some common types of investments mentioned in the video?

The video mentions stocks, bonds, index funds, ETFs, real estate, and cryptocurrency as some of the common types of investments.

What is the purpose of an investment account?

An investment account is a special type of account required for purchasing securities like stocks and bonds. It allows individuals to invest in various financial instruments and grow their wealth through capital appreciation and dividends.

What are the four common types of brokerage or investment accounts?

The four common types of brokerage or investment accounts are standard brokerage accounts, retirement accounts (like IRAs and 401ks), education accounts (like 529 plans and ESAs), and custodial accounts for minors.

How does the video suggest one can make money beyond traditional employment?

The video suggests that to make more money beyond traditional employment, one should consider starting a business or a side hustle. This can include online ventures like a YouTube channel, blog, or website with ad revenue and affiliate marketing.

What are the five factors that determine a FICO credit score?

The five factors that determine a FICO credit score are payment history (35%), total amount owed or credit utilization (30%), length of credit history (15%), types of credit (10%), and new credit or hard inquiries (10%).

What is the recommended strategy to avoid credit card debt?

The recommended strategy to avoid credit card debt is to never buy anything with a credit card that you cannot afford to pay off in full at the moment of purchase.

What are some benefits of using credit cards responsibly?

Using credit cards responsibly can help build a good credit score, provide rewards and cash back, and offer convenience and security as they often come with purchase protection and fraud monitoring.

What are the differences between a secured credit card and an unsecured credit card?

A secured credit card requires an initial cash deposit that serves as collateral, determining the credit limit, and is often used by those with no credit or bad credit. An unsecured credit card does not require a deposit and is offered based on the applicant's creditworthiness, often with better rewards and perks.

Why should one avoid store credit cards according to the video?

Store credit cards are advised against because their only real benefit is an initial discount, and they typically do not come with rewards or perks. They also may have high interest rates and can negatively impact your credit utilization ratio if not managed properly.

What are the recommended types of bank accounts for someone new to personal finance?

For someone new to personal finance, it is recommended to open a checking account for daily transactions and a high yield savings account or a money market account for saving money, as these offer higher interest rates compared to traditional savings accounts.

What is the basic difference between a checking account and a savings account?

A checking account is designed for frequent transactions and bill payments, offering quick access to funds but not intended for saving. A savings account, on the other hand, is designed for storing money with the intention of accumulating interest over time.

Why are high yield savings accounts and money market accounts preferred over traditional savings accounts?

High yield savings accounts and money market accounts are preferred because they offer higher interest rates compared to traditional savings accounts, allowing your money to grow at a faster pace while still maintaining relative accessibility.

What are the different types of taxes that one can expect to encounter in life?

The different types of taxes one can expect to encounter include income tax, sales tax, capital gains tax, and property tax. These taxes are levied by federal, state, and local governments and can apply to various aspects of financial transactions and assets.

How do tax brackets work and why are they important?

Tax brackets determine the percentage of income that is taxed at each level based on income levels. They are important because they illustrate the progressive nature of taxation, where higher income levels are taxed at higher rates, and can affect how much of one's income is retained after taxation.

What are some free resources available for filing taxes?

Free resources for filing taxes include software like TurboTax, H&R Block, and Credit Karma, which can automate the tax filing process for simple tax returns. These services may require an upgrade to a paid plan for more complex tax situations.

Why is it recommended to hire a CPA for complex financial situations?

Hiring a CPA is recommended for complex financial situations because they have expertise in navigating tax laws and can help avoid costly mistakes. Their knowledge and advice can be invaluable in maximizing tax savings and ensuring compliance with tax regulations.