Personal Finance 101: Personal Finance Basics

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Photo Credit: warrenski

Have you ever seen the episode of 60 minutes where they show lottery winners who are now broke? At one point, they had enough money to retire and live a more than modest lifestyle for their remaining years. They could have paid off their mortgages, taken a few trips a year to exotic destinations, or simply just continue living life. No work, all play. Instead, they made poor financial decisions, and it cost them.

In case you ever win the lottery, I don’t want to see you end up like those idiots. So, over the next few weeks, I’ll be teaching you all the basics of personal finance.

Finance Basics

When you hear the term “finance,” images of Wall Street douche bags in $3,000 Armani suits screaming, “Sell! Sell! Sell!” into their bluetooth headsets might flicker behind your eyeballs. Or maybe you picture a homeless person in tattered threads, begging for change on a street corner with a cardboard sign that says, “Help me. I’m a f**king idiot who hedged all my money on mortgage-backed securities.” Whichever stereotypical finance poster child your imagination has decided to conjure up, it’s important to understand that they are all governed by the same basic financial principles. Whether or not they choose to follow them is a different story.

Before I open the floodgates of the personal finance world, it’s important to understand some Finance basics. Good news. It’s pretty damn simple. Finance can be summed up into a two overarching principles:

  1. A dollar today is worth more than a dollar tomorrow
  2. Generating a positive return on your investment (ROI) isn’t optional, it’s a requirement.

Commit those to memory.

Hopefully your inner Aristotle is asking, “But why?” Let’s tackle principle #1 first and answer the question, “Why is a dollar today worth more than a dollar tomorrow?”[…]Continue Reading

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