Personal Finance is a Learning Process

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Today we have a guest post from Douglas Keller of Peak Personal Finance. He’s sharing his personal story of what brought his financial awakening and what’s most important to him. Hope you enjoy it!

There was always something that drew me to money. Making a few extra bucks marked my childhood as summers were devoted to lemonade stands and lawn mowing, while the winters were spent raking up leaves and shoveling driveways.

I knew that with a better understanding of money was the promise of even greater earnings and as a kid that was all I needed.

Even with years of experience, I don’t know everything, but there are a few things I’ve picked up along the way.

Calculate Your Real Expenses

In my early days, I thought a lemonade stand was the most brilliant way of making money. I had no grasp of expense outside of wanting toys and candy but not having the funds to purchase them.

Seeing the opportunity for a lesson, my parents thought they would teach me about expenses the hard way.

Initially, they funded my business, but after the initial round of funding, I was on my own. And soon after losing my investors, I realized the difficulty of real expenses.

After buying supplies, the only thing my profits could buy me was a single cup of lemonade from my own stand.

But how does this relate to personal finance? After a long week of work when you’ve just gotten your direct deposit and you feel invincible, remember the true expenses.

Whether it’s your rent, debt, or credit card bills, understand that identifying your costs is critical for enabling you to allocate your money appropriately and to ultimately be successful financially.

Build Your Emergency Fund

Fast forward some years to when I was walking across a stage and receiving my
undergraduate degree.

At the time I didn’t have a job and had to move right back in with my
parents. I started making payments on my student loans from money in my savings
account. T

The longer it took to get a job, the more I felt it. When I did finally get a position
and start making some money, it was such a relief. But instead of prioritizing my finances, I started doing all the things I had been missing for months.

The second I got my job, I should have used that as my springboard to financial prosperity but instead, I indulged and set myself back.

This is such a critical time to begin building up an emergency fund as down the road, that money will provide you with the flexibility to make difficult choices.

You don’t have to save an incredible amount early on, but it should be enough to add up over time. Having at least half a year’s worth of salary in an emergency fund is so valuable. Whether it’s an unexpected injury or a layoff, the emergency fund is crucial for everyone and it’s there to bail you out of tight times.

Investing For Your Age

From the moment I heard about the stock exchange, I wanted in.

The thought of making absurd amounts by doing nothing more than buying and selling had me hooked, but as a young man, my early spending mistakes had rendered me risk-averse.

As a result, my strategy within the market was to find low-risk stocks and mutual funds that were guaranteed small but steady returns.

I watched as the valuations slowly ticked up and couldn’t help but feel I’d
outsmarted the system. I knew the benefits of high risk, high reward assets and while I did invest in a few opportunities, all in all, I was conservative.

But as a young person, risk is your friend.

While it may not seem optimal to put your money in something that could flop, it may be worth it. The stock market is a cyclical entity that constantly fluctuates up and down.

If you give it enough time, shares can regain and even surpass their value. The thing you have to understand is that losses don’t hurt you until they’re realized.

What that means is that if you own shares worth $100 and they take a 70%
dip in value, it may seem like you’ve lost $70 but that’s only if you sell.

For this reason, it is important to hold onto your assets and not to be driven by emotion in how you handle various situations.

From all of these experiences, I’ve come to understand personal finance as a learning process.

There are things we know and things we gain by doing over time. Making money was the thing that got me going early, but that passion evolved. Whatever your motivation, know that with the right appetite for risk and hunger for knowledge, you too can learn the mysteries of personal finance.

Douglas Keller has been a financial expert for 20 years, helping people reach financial stability. He now provides personal finance tips on his blog Peak Personal Finance and tips for saving at home at Payless Power.