Personal Finance is a topic that every millennial should know. It’s more than just creating a budget – it has a huge influence on your lifestyle. Not knowing the basics can lead to undesirable consequences, such as accumulated debt at high interest rates, and low savings account balances. Below are the 5 important things about Personal Finance you should know.

1. Time value of money

Delaying your savings by 5 – 10 years can cost you a fortune in the future. The “I don’t have enough money” excuse is a huge myth. Saving something as little as $100/month will lead to a little over $790,000 in savings in 50 years (at the average 8% long term stock Return on Investment). Delaying your $100/month savings would lead to a loss of more than $440,000. You’ll thank yourself during your retirement years for starting early, where you had the advantage of time value.

2. Budgeting

Budgeting is a weak spot for many millennials. It’s really easy to lose track of your budget and overspend. Or perhaps, the occasional emergency expense would catch you off guard. As mentioned in the Millennial Savings Guide, the most effective strategy is to expense all of your purchases on one credit card, in order to keep track of your spending. In your budget, the three crucial aspects are cash inflow, cash outflow, and your savings rate. Ensure that everything is automated (i.e. direct deposits and bill payments) – this will save you a lot of time and reduce the chances of a missed bill payment. Having your budget under control is the key to financial stability.

3. Credit Cards

When used wisely, everyone can reap huge benefits from credit cards. It offers an interest free loan (during the grace period), and rewards at the same time. Rewards range from cash back (i.e. 1% cash back on your purchases) and collector points (such as Air Miles). From the personal finance aspect, credit cards allow you to keep track of your spending. While credit cards are extremely beneficial, it’s important to understand the dangers of credit cards.

Credit cards are also a huge credit score booster. To maintain a good credit score, keep your credit utilization score low, pay your bills on time, and try not having more than 2 – 3 credit cards. There are many services where you can check your credit score, such as Mogo, Equifax, and TransUnion.

4. Loans & Mortgages

Lending is a great strategy to use to leverage on your networth. For example, $x can be borrowed to invest in the stock market, where the return on investment is greater than the loan interest in the long term. The 3 most common loans are personal loans, line of credits, and mortgages. Line of credits are a revolving credit (secured or unsecured). It offers you a credit that can be paid back at any time. Personal loan is a loan with fixed payment that must be paid back during a certain time. Mortgages are loans advanced to the homeowners for their home, using the property as a collateral. In many cases, it’s wise to borrow at low interest rates, rather than using cash. Make sure to shop around for the best deal – Rate Hub has a great tool for comparing the different mortgage offers on the market.

5. Bank Accounts

Bank accounts are the central focus of your personal finances. For simplicity (and less banking fees), having one primary bank account makes it much easier to track your cash inflows and outflows. Using multiple bank accounts is more time consuming, and might lead to more bank fees. For maximum convenience, automate everything through your bank account – automating your inflows and outflows ensures your finances are on track.

Writer: Jelani Smith

Disclaimer: All investing can potentially be risky. Investing or borrowing can lead into financial losses. All content on Bay Street Blog are solely for educational purposes. All other information are obtained from credible and authoritative references. Bay Street Blog is not responsible for any financial losses from the information provided. When investing or borrowing, always consult with an industry professional.