THIS IS A CONTRIBUTOR ARTICLE:
By Adrian Fernandez
Every day I see people living my dream of financial freedom online and I wonder — are they living it? Recently, I was reading the CNBC Your Money Survey and was reminded how vital it is that we all start to understand financial literacy – since the reality is far from what we see online.
Here are four takeaways from that survey as I begin my financial plan as a college student.
Homeownership: “An Achievable Gateway to Wealth?”
Owning a home is not just a life milestone; it’s a strategic move in the game of wealth building. Last quarter’s CNBC survey of over 4,000 adults across the U.S. discovered that about half of non-homeowners express very high financial stress. Contrastingly, only less than one-third of homeowners share the same level of stress.
The key takeaway?
Homeownership isn’t just a place to live; it’s a shield against financial stress. Although owning a home can make you feel successful and closer to financial freedom, if we explore deeper we’ll see one reality- having a financial plan is what took those first-time homebuyers there, and it’s what truly leads to less stress. Or are you more stressed when you know where your money is going and not living paycheck to paycheck anymore?
But how does one achieve homeownership? This is where financial literacy becomes a powerful tool. Let’s see where all the puzzle pieces connect. To buy a home you need to understand what a mortgage is, to get a mortgage you need to understand how its principal and interest rate work, and to understand how interest rates work you need to understand the time value of money. You can quickly see how important financial literacy is…
Students today rarely understand that how they use their credit cards will impact them when they buy a house, and every single major financial decision like buying a car, and that’s where YOU have the advantage when you know how to U.S.E. money.
Part of the challenge in homeownership right now is rising prices and rates, but even these ones impact you less when you are financially literate. As an example, I recently bought my first car and was able to negotiate the rate from 13% down to 6%, a rate that many adults today with significantly longer credit histories and who are first-time buyers don’t achieve, and it was all due to understanding how numbers work and that you, as the buyer, have power too.
Inflation: “The Monster Eating Our Money”
Inflation has emerged as a primary financial stressor for Americans, with 74% reporting feeling stressed about their finances.
I hate the monster eating our money too! In this era of rising prices, understanding how inflation impacts your budget is crucial. As an example, in my neighborhood in central Florida, average two-bedroom apartment rents have risen from $1,200 to $1,800 since COVID! This rising cost of living cost delayed my homeownership plans by two years, just because of that money-eating monster. However, let’s think about this for a second.
Who is earning that interest we are paying and higher rents? Whose property just increased 50% in value or $200,000 for a $400,000 mortgage? People who are putting their money to work. Perhaps we should frame our thinking from “I hate inflation and can’t do anything about it” to “Let me take advantage of rising prices by investing and earning that compound interest myself”.
Retirement Planning: The NEW Money vehicle
Over half of Americans (60%) have a retirement account through their work, but 56% feel they are not on track with their annual 401k savings.
Why? It is because they don’t have a retirement plan, they just have a retirement account. Often, these people must work after they retire or delay their retirement age to afford living expenses. We students must learn the importance of starting early, not only because of rising inflation but also because our biggest advantage is time. 40 and 50-year-olds don’t have as much time to take advantage of the 8th marvel of the world, compound interest, but you and I do!
Like Peter Drucker, said, “The best way to predict the future is to create it”. Compound interest is truly the key to creating a financially secure future, so we can stop living paycheck to paycheck and take financial stress away from our lives.
Living Paycheck to Paycheck: Planning to Break the Cycle
How stressed would you be if you were living paycheck to paycheck and you got laid off, like people get multiple times in their life? What about a medical emergency? What if your car breaks down? Where would you get the money from to feed yourself and your family, and how much interest do you think you would pay on that?
The survey revealed that 61% of Americans are living paycheck to paycheck, up from 58% in March. People do not have financial plans and many are just trying to get through the week or month with the hope that they have enough.
Frankly, hope is not enough. This highlights another reason why understanding the language of money is important- because it allows you to not live paycheck to paycheck and minimizes substantially your stress, so you are more confident in your money and ability to succeed in life. By having that emergency fund, or Corona Cushion as we call it, we can avoid the curveballs of life.
Conclusion: Empowering Financial Futures
What are the takeaways? As a high school student embarking on your journey, you should put into practice what you learn as you start speaking the language of money by acting on these four lessons:
- Prepare your credit for the life goals you have.
- Prepare against inflation, and then, invest and take advantage of it.
- Create your financial freedom by U.S.E. ing the 8th marvel of the world (compound interest)!
- Having that emergency fund, or Corona Cushion, allows you to avoid the curveballs of life.
These four takeaways can’t be communicated properly without saying the main reason why we wrote this article: Learning personal finance is a must and will give you a great return on your time!
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