Financial Literacy - how to earn, save, and grow money

Hello, friends!

The path to success in Forex is long and thorny, but along with earning money, to which almost all our other articles on the site are devoted, comes the need to manage it wisely.

How do you preserve and control what you have already earned? How do you grow your savings? How do you get rid of loans, if you have them, and feel confident about tomorrow? Our webinar, which has been brewing for a very long time, will be devoted to these questions.

Greetings to you, ladies and gentlemen, Forex traders! Today we will talk about financial literacy. Financial literacy includes personal finance management, control of expenses, income, and investments.

Someone may ask, why do I need financial literacy when there is Forex? After all, even if you earn a lot, control is necessary. Surely you have come across stories where some famous actors or singers, seemingly earning millions of dollars, have considerable debts. All this is because people live beyond their means and do not count their money.

If this is not your first day on our site, you have probably heard my advice about accumulating money in a Forex account. Whatever account you have, always withdraw 50% of the profit. Why is this important? First of all, this way you maintain moderate risks while preserving growth potential. Right now this is especially relevant, since there are signs of the crisis coming to an end, when everything is starting to get better. But since everything in our life is cyclical, now is the time to start saving funds in case the situation worsens again.

In fact, controlling the expense side is the easiest part. As for expenses, you should understand that there are only two currencies: money and time. At the same time, if money can be earned, time cannot be returned in any way. Therefore, it is important to decide for yourself which currency matters more to you.

Expenses can be big, like sharks, vacation, a car, a mortgage, and piranhas, gas, groceries, cafes and restaurants, and the phone. If sharks can destroy you immediately with one bite, then piranhas will do it gradually with the whole pack.

I think many have heard of the principle of 100 cups of latte. Suppose that every day at work you drink a cup of latte for 120 rubles, then by giving up coffee you will save 3000 rubles in a month, and 36000 rubles in a year. And if you invest this money at 20-25%, then in 10 years, taking compound interest into account, you will accumulate 1 million rubles, and in 20 years about 14-15 million rubles. This is, of course, an ideal situation, but expenses need to be cut in any case.

An expense-tracking app on your smartphone, the same Excel, or the dashboard of any bank that shows all your expenses can help with this. This way, you can identify where your money is leaking away.

This is the so-called operational accounting, but there is also balance accounting. That is, instead of counting operations, income and expenses, you count how much money you have in total from all sources. Every month you draw up a table and sum up how much money there was in the previous month and how much there is in the current one. As long as the trend is upward, everything is fine. If the balance is falling, you need to tighten your expenses.

What else is worth paying attention to is spending as a percentage of the budget. This is especially useful if your salary is not fixed, but piecework-based. It is a common situation that when you start earning more, uncontrolled spending begins. For example, you can set spending on clothes at 10% of the budget. Thus, the more you earn, the more you will be able to spend on clothes or food. The main thing is to define the boundary strictly.

How can you avoid unnecessary purchases? One option is to buy everything strictly according to a list. If a desire to buy something appears, write it down on the list until the next trip to the store. Also, try to get a benefit out of every purchase. Many banks have bonus programs, you can accumulate free miles on flights, and there are many cashback services that let you save on purchases.

If we draw an analogy with trading, then expenses are stop losses, and a margin call is an overdue loan. By the time of a stop-out, bailiffs are already arriving. Loans are primarily good for banks; we need to avoid them. How can this be done?

We often take out loans for things we have long dreamed about. These can be apartments in Moscow City or a dream car. First, you need to make sure that you really need this thing. Nowadays almost everything can be rented or even tried for free. Rent the apartment for a day, rent the car, perhaps in fact everything is not as cool as it seemed to you. It is not necessary to get into a credit noose right away.

If you already have loans, for the same apartment, car, fur coat, or brand new iPhone, then how can you get rid of them faster? The simplest and most logical way is to pay off the loans with the highest interest first. If there are many loans and there are small ones, pay off the small ones first. This will make you feel morally better. In the case of large loans, the most correct thing will be to increase the loan term but reduce the amount of the monthly payment. In the end, you will pay more, but life will become calmer and this will free up your hands a little in terms of managing funds.

There is an opinion that if you invest all your savings in a trading account, you will soon become a billionaire. In reality, this is not so. Think about why the owners of factories and ships invest money in other enterprises, invest in funds, stocks, and so on. That is, why do they not invest all their money in their own enterprise? The answer is simple: diversification. At the same time, diversification not only reduces risks, but also gives emotional peace of mind.

Some people dream of living off interest. If you try to estimate it, then the average person would need capital of about 30 million rubles for this, assuming 10% per year. But in any case there are risks, and this whole scheme can collapse due to unforeseen circumstances.

However, your own business, your own trading, and PAMM accounts can also yield returns, where you can already count on a more decent income. At the same time, you should always have a reserve fund and in the most liquid form possible: cash or money in a regular account. The size of the reserve fund should be such that, without living too lavishly, you could live on that money for six months. In addition to the reserve fund, there should be money for unexpected expenses. The car broke down, one of your relatives ended up in the hospital - all this takes a lot of money.

The next thing worth sticking to is increasing your dollar holdings. There is a person who, since the collapse of the Soviet Union, has simply been saving dollars in a deposit, without investing them anywhere. Thus, approximately every five years the relative amount doubles, while the ruble becomes cheaper.

Bank deposits are the most obvious investment instrument. Reliability, of course, is no longer what it used to be, but overall it is still fairly high. The most convenient option is to use a card with interest on the balance. That is, while you are not spending the money it earns some interest, and at the same time you can use it at any moment.

As for real estate, in my view the only adequate instrument is new construction. That is, the most reliable option is to buy an apartment at the construction stage and sell it when it is completed. At the same time, this definitely should not be done during a crisis period, since there is a risk that the entire construction project will stall.

The next investment instrument is stocks, futures, bonds, and so on. In essence, this is not very far from trading, which again turns into full-time involvement. Therefore, it is difficult to call such a method an independent investment instrument.

You definitely should not hand money over to trust management, invest in MMM or HYIP projects, which by definition do not live long. The chance that you will get your investments back is close to zero. As an alternative to trust management, you can use PAMM accounts - in this respect they are more reliable. Another investment instrument is someone else's business. Of course, there are a great many pitfalls here, and it is worth understanding that even your own personal business is a very risky undertaking, and someone else's all the more so.

At any time, an adequate modern computer cost about 1000 dollars. You can buy a computer 2 or 3 times more expensive, but you will not notice improvements several times over. The point is that in any sphere, whether it is computers, clothes, or food, there is a certain threshold. Let us say it costs N to reach it. Everything above this threshold, both in terms of effort and in terms of expense, costs much more. That is, you can count on something one and a half times better, but it will cost you 5N.

How do you avoid getting frustrated by comparisons? Suppose you earn 30K a month, while your friend earns a million. You got a raise and started earning 45K, that is, you increased your income by 50%. It seems very decent, but you compare yourself with your friend and feel like a nobody. Therefore, when moving forward we compare ourselves with our past selves, because there will always be someone cooler than you, faster, or smarter.

From the experience of athletes, recording results leads to growth. Try, purely for yourself, to record your results. First record your current state - point A, and then depict your final goal, that is, what you are striving for - point B. Then you make up an intermediate goal, so to speak, a slightly upgraded point A. In this way, you can move through the levels and note your achievements.

For each person there is a certain income level after which it will become much easier for you to cover your own expenses. This level is different for everyone, depending on needs and habits, and it is not so easy to reach. But having reached this level, you will truly feel the difference.

Respectfully, Pavel Vlasov
TradeLikeaPro.ru