12 Personal Finance Tips and Tricks to Make You Rich

5. Have Financial Goals

If you want to accomplish financial goals, you need to figure out what goals are important to you first. Having a clear goal can keep you motivated and help you come up with a plan to reach that goal even faster.

Now, don't think that you need to set outrageous goals. If this is your first time thinking about personal financial goals, start off small and work your way up from there.

I'd suggest coming up with a few different goals in each of these categories:

• What you want to achieve in the next 3-months
• In the next year
• In the next five years

This way you'll have some short-term goals to look forward too, and some long-term goals to work towards as well. Your short-term goals may even be small stepping stones towards your bigger goals.

Here are some examples of good financial goals:

• Save $1,000
• Buy a house
• Start investing

So, remember to set long-term and short-term goals, and keep track of them too! Write them down somewhere and set a day each month to track your progress.

6. A Credit Card is Not Free Money

A credit card is a useful tool in your finance toolkit, but it's not free money.

When you purchase something with your credit card, you are borrowing money from the bank. If you don't give that money back in time, the bank is going to start charging interest on your balance.

This debt can build up and become a monster if you don't pay off your balance every month.

However, if you use a credit card responsibly and pay off the balance every month, it's a good way to start building credit. Most credit cards also have other benefits such as rewards points, cash back, or travel points.

So, should you have a credit card? Well, it depends.

If you're capable of paying off the balance in full every month, then you should have no problem managing a credit card and staying out of debt.

PS: If you are going to use a credit card, you should monitor your credit score & credit report regularly with a free tool like Credit Sesame (or Borrowell if you're in Canada).

One last tip: Treat your credit card like a debit card. Pay it off in full every day if you have to. I try to pay off my balance every couple of weeks so that I don't forget. I also use Trim to remind me when payment is due.

If you want to take it further, use a prepaid reloadable card instead of a credit card. These cards work just like debit cards, but they have the perks of credit cards. For example, read my Koho Review – Koho is a prepaid card with cashback, budgeting, savings goals, and more. Note that prepaid reloadable cards won't help you build credit though.

7. Stay Out of Bad Debt

Debt means you owe someone money, and if I've learned anything from gangster movies, you NEVER want to owe someone money.

However, not all debt is necessarily bad debt.

So, what is bad debt?

Bad debt is any debt that's acquired through purchasing something that's going to lose value and generate zero revenue.

Some examples of bad debt would be credit card debt or an auto loan.

What is good debt?

Some people will say there's no such thing as good debt, and while I mostly agree, I also can't deny that some debt can be beneficial in the right circumstances. 

For example, if you are going to take out a loan to purchase something that will benefit you financially in the future, I'd say that debt is a lot more beneficial than credit card debt. 

Good debt usually has lower interest rates as well. Here are a few examples:

Student loans

Since student loans typically have a very low-interest rate and going to school can increase your pay as an employee in the future, student loans can be considered good debt.

However, if you're going to college just because you don't know what else to do after high school, that's probably the wrong move. You could end up wasting a lot of money studying a field that you don't even enjoy. Then you'll be stuck working a job you hate to pay off your student loans. Not fun.

Mortgage

This one's a tricky one, but mortgages are generally considered good debt. They are usually long-term loans with low interest rates, so you'll still have money freed up for investments and such. The interest from mortgages is also tax deductible, so that's a bonus.

In the end, it's up to you to decide whether purchasing a home is the right move, as the value of a house will not always rise as some people think. You'll also have to add in the expenses of property tax, utilities, and home insurance.

Business Debt

There are a lot of online business ideas you can start on the cheap these days, but a small investment can also go a long way in certain endeavors. Business loans are considered good debt because they are put towards something with the goal of increasing your net worth.

8. Have an Emergency Fund

If you lost your job tomorrow would you have enough money to live off while you look for a new one? If not then you're not alone.

This study found that although Americans are doing a better job at saving, around 24 percent of them (57 million people) don't have an emergency fund.

Now I don't want to be a negative Nancy or a Debbie downer, but emergencies happen all the time. They may not happen to you, but it's always good to be prepared.

You can't predict an emergency, but you can prepare for one.

The best way to do so is to set up an emergency fund of 3-6 months living expenses. That means if you lost your job tomorrow, you'd be able to live off your emergency fund for 3-6 months while you look for a new one.

Here are some common financial emergencies:

• Job loss
• Car problems
• House repairs
• Natural disaster
• Medical or dental expenses

Still not convinced that you need an emergency fund? I wrote a story to show you how important having an emergency fund is:

The Story of Jimmy

Jimmy is an optimistic guy who makes $2,000/month and pays $1,500/month in expenses. The leftover $500 he uses as pleasure money.

Jimmy doesn't think anything bad will ever happen to him, so he doesn't think he needs an emergency fund. He's done fine all these years without one, right?

Jimmy goes into work one day and is told he's being let go because the company has gone bankrupt. Sorry, Jimmy.

Jimmy is shocked, but he's still optimistic. He'll just put his expenses on his credit card while he looks for a new job. He'll have to live without his $500 pleasure money for a bit, but he's okay with that.

Jimmy works hard to find a new job and 2-months later he's hired. It pays a bit less at $1,750 a month, but it's better than nothing.

He's now racked up $3,000 in credit card debt. Since his new job pays less than his old one, he'll only have $250 left each month after paying for the necessities.

With $3,000 on his 15% APR credit card, it will take him 14-months to become debt free, and he'll pay about $270 in interest. Keep in mind Jimmy would have to live without any pleasure money for over a year to pay off his debt at this rate.

If Jimmy had just set up a 3-month emergency fund, he wouldn't have had any debt at all, and he would still be able to do fun stuff.

Moral of the story:

Don't be like Jimmy. Set up an emergency fund. You probably didn't need that silly story to convince you, but it was fun to write.

9. Know Your Net Worth

Net worth can seem like a tricky topic, but it's quite simple. Your net worth is how much money you are worth. If you were to sell everything you own, then pay off everything you owe, how much money would be left?

That's your net worth.

Here's what that looks like in equation form:

Net worth = Assets (what you own) – Liabilities (what you owe)

Ready to calculate your net worth? Here's how:

First, create a list of all your assets (what you own) and their estimated value. Here are some examples of assets:

• Money
• Investments
• Real estate
• Cars
• Jewelry
• etc.

At the bottom of the list, add up the total value of all your assets.

Next, create another list of all your liabilities (what you owe). Here are some examples of liabilities:

• Credit card debt
• Mortgage
• Student loan
• Auto loan
• etc.

At the bottom of the list, add up the total value of all your liabilities.

Now that you have the total value of your assets and liabilities, plug the numbers into the equation above, and you'll get your net worth.

If you have a positive net worth that's good. Continue working to increase your net worth even more.

If you have a negative net worth, you need to take a look at your budget and come up with a plan to increase your net worth. If you're young and you have a big student loan, you shouldn't worry too much as you haven't even started working yet.

Make sure to re-calculate your net worth every month or so to keep up to date with your finances. I use a free tool called Mint to track my net worth but many people recommend Personal Capital as well.

10. Start Investing

Investing is one of the best ways to increase your net worth, but a lot of people stay away from it because they're scared of losing money. So instead of investing, they keep their money in a savings account. That's great, and you should have some money in a savings account for emergencies, but the truth is:

Money in a savings account loses value over time.

See, the average savings account has a very tiny 0.06% APY (annual percentage yield), while inflation is around 1.7%. That means that each year, the money you have in a savings account is going to have less and less buying power.

So, what can you invest in to stay ahead of inflation? Here are some options:

• Real estate
• Peer-to-peer lending
• Exchange traded funds (ETFs)
• Stocks
• Cryptocurrency (crypto can be volatile, so invest at your own risk)

11. Communicate With Your Significant Other

Notice how I wrote significant other; this financial tip doesn't just apply to married couples. Money fights can affect any relationship.

The best way to avoid fighting about money with your S/O is to talk to them about it. Remember that you're a team! You should be talking to each other about your financial goals, and you should set a date once a month to go over your finances together.

I recently started doing a monthly money meeting with my girlfriend and it's actually been pretty fun. We get to see where each other are at with our financial goals and we keep ourselves motivated to accomplish those goals.  

The bottom line?

Don't let money ruin a great relationship.

12. Side Hustle to Make More Money

Are you happy with the amount of money you're taking home each year? If you're like most of us, a little bit of extra cash each month could go a long way.

So, why not start a side hustle to supplement your income?

Don't worry. You don't have to sacrifice all of your free time to start a successful side hustle. One of the big advantages of side hustling is that you can do it when you want and as much (or as little) as you want.

The best advice I can give you is to start. Use any extra time you can find and make a little bit of progress every day. Soon you'll be addicted to the side hustle lifestyle.

So, how much money can you really make with a side hustle?

Well, that's the other awesome thing about side hustling, the income is virtually limitless. Since you're not getting paid by the hour or a set salary, it's really up to you to decide how much you want to earn. The more you feed your side hustle, the more it grows.

Conclusion

There you have it, the personal finance basics laid out in 12 simple points. Now I've got a question for you:

Did you learn anything new from these personal finance tips and tricks? 

If you did:

Take action. Start working on improving your finances today, not tomorrow.

It's easy to read these tips and think, “Oh, I can calculate my net worth tomorrow” or “Ehh, I'll set up that auto-deposit next month.”

But if you say that stuff, you're just coming up with excuses. Take action today, and you'll be one step closer towards financial success.

Finally, I want to hear from you:

What's one personal finance tip you wish someone had told you earlier?