Speaker 1: Hey guys. Today's video is going to be an introductory guide to personal finance. Whether you are a high school student, or someone who is just entering college, or maybe you're even older than that and you just want to learn a little bit more about finance, this video is for you. I'm just going to be going over the very basics of the framework that makes up personal finance and managing your own money. Do keep in mind that some of these tips might only apply to you if you're an adult and can legally open your own financial accounts, and they're kind of US-specific because I don't really know the details of how finances work in other countries, but the basic principles of money management and budgeting still apply to everyone. Without further ado, let us get started. To start off with, you might be a little bit confused about what personal finance exactly is. In simple terms, it's the system through which your income flows out eventually into you having things and surviving. Let's look at it in the analogy of a system of rivers and streams and lakes. The whole ocean, or all of the water in the world, is just all of the income or spending that ever exists in an economy. Then you take some of that in for yourself as your own income that feeds into your personal finance water stream. Then that water, which represents money, flows into different rivers and streams that are different ways that your monies can be spent or places they can go. Sometimes they'll also collect in lakes, which are places where you store and save up your money. If a lot of the terms and things I'm saying sound a little bit confusing, don't worry, we're going to go over every single thing I've labeled on this diagram one by one in this video. To start off with, part one is income. You do in fact need to make money in order to manage your money. I know, a mind-blowing concept. If you're a full-time high school or college student, you probably can't pursue a full-time job, but there are still a lot of different options for you to earn some money and maybe do something that's fulfilling to you. Here are some ideas about how we as students can make an income, and a lot of these will still apply even if you're under 18. You can do traditional kids jobs like babysitting, walking dogs, or mowing people's lawns. A lot of colleges also have on-campus jobs where you can work in the cafeteria or the student union. There are a lot of different options and you can check them out on your university website. You could start your own small business. Maybe you want to make stickers or handmade scrunchies or any other idea you have under the sun. It can probably be sold on the internet or at flea markets or small local markets. You might consider a lot of different options for part-time work as well, such as being a barista or working in retail or maybe interning if that's an option available to you. Try to get a paid internship because, you know, an unpaid internship doesn't produce any income, so it's not useful to the premise of this video. Another option for a fully internet-based business is a blog or a YouTube channel like the one that I have. Speaking of getting an income through an online YouTube channel, let's take a moment to discuss the lovely sponsor of today's video, Grammarly. Grammarly is a digital writing assistant that provides spelling and grammar suggestions, and it can be downloaded as a browser extension. You can use it to proofread your cover letter or resume or your essays for school. The free version is already great on its own, but if you want some additional features, the premium version allows you to get corrections such as vocabulary suggestions, adjustments for conciseness, and improved sentence structure. It also includes a plagiarism detector for your schoolwork. I personally find it really helpful for making sure that any emails that I'm sending for business first study quill or for my part-time internship work are completely grammatically correct and professional looking. I tend to be a little bit hasty in firing off emails, and I've definitely sent out a few typo-ridden, unprofessional-looking things that probably didn't help my reputation much, so I've been finding Grammarly really helpful to avoid these errors. Visit grammarly.com studyquill to set up your free account and get 20% off a Grammarly premium subscription. By the way, let me know if you'd be interested in hearing more about how to make money on the internet. That sounds like such a skeevy, disgusting video topic, but I genuinely find it kind of interesting, especially because I want to empower other young women of color like myself to not be afraid to take up space and monetize your content, so am I just trying to convince myself that I can do some sort of like social justice positivity thing, but I'm actually just promoting some sort of capitalist agenda? Maybe a little bit, but you know what, just let me know what you think in the comments. The ideas I've mentioned can be ways for you to start earning an income or add on additional side hustles to supplement your income. Once you've figured out that situation for yourself, your second step is to look into a checking account. To open your own checking account, you do need to be an adult, but if you are a minor, you can still open one that's in your own name, but a custodial account that is technically owned by your parents. And this checking account is the first stop for all of your income. It's that largest main river that all of your money flows into from the ocean of income, and then it flows out of that river and splits off into all of the other places that your money can go. You could also compare it to an airport terminal, where the money comes in like an airplane landing, and then it exits to the other destinations where it needs to go. This is a place where your money should stop, but should never be the final resting place. In general, you want to keep about a month's worth of expenses in your checking account, but not much more than that because checking accounts have very low interest rates, which means anything you're storing in there is just losing value due to inflation. What that means is that generally, at least here in the U.S., inflation will reduce the value of your money by about two or three percent annually. Conversely, checking accounts usually have absolutely abysmal interest rates, like mine has a 0.01% interest rate. That means that even though I gain a teeny teeny tiny bit of interest in my checking account, overall I'm still losing that two to three percent in value every single year. You can't really optimize it to make you money. What you can do is optimize it to prevent you from losing money. I'm not here to recommend you specific checking accounts because I'm not really an expert enough to make those recommendations, but I do want to advise you on ways to avoid two of the most common ways that people are losing money. The first one to avoid is the account minimum fee or a annual maintenance fee, whatever they call it. Basically, some accounts will require you to keep a minimum level of money in your account every month or they will charge you a fee like 20, 30, even 50 dollars to even just have an account. But you want to read into the rules for your checking account and do what it takes to avoid those fees. Just keep the minimum balance or sign up for online alerts or whatever it is they're asking for. Or conversely, just pick a checking account that doesn't have any of these fees. The second kind of fee that you definitely want to avoid is the overdraft fee or the insufficient balance fee. This happens when you try to transfer money out of your checking account or spend something from your debit card, but you just don't have the money in there. Another thing you might want to do is link your checking account to a savings account with overdraft protection. That basically means if you try to charge something to your savings account but there's not enough money in it, your checking account will automatically transfer in some money from your savings account to cover that and avoid the overdraft fee. Now that we've gone over the checking account, let's talk about where the money goes from that airport terminal. It's especially important for us as young people to get into the habit and a healthy mindset of budgeting and living within your means. I'm not here to tell you you have to completely micromanage every single dollar that you're spending, but it is important that you're mindful of where your money is going. And for this, I recommend the 50-20-30 rule, which is a pretty popular personal finance guideline that was actually popularized by Elizabeth Warren. This general guideline states that about 50% of your income should be going to mandatory living expenses, 30% to nice-to-have expenses, and 20% to saving. Now, we as students might have drastically different balances within this. For example, maybe you live with your parents and attend a public high school, so you don't really have that many living expenses. Or conversely, maybe you're paying for your own tuition at a private school and it's really eating up a lot of your income. So the vast majority of us will need to rebalance these 50-30-20 buckets. With that in mind, let's go over what exactly these three categories are and how you can optimize each of them. These will also correspond to the steps that I mentioned on the river flow chart that I showed earlier. First, we have got the theoretically largest category, which is must-have spending. This includes stuff like groceries, debt payments, maybe you've got student loans, your tuition and school supplies, housing costs like rent and utilities, your cell phone bill, your wi-fi. I'd also consider anything you have to use for your job as a mandatory expense. For example, I have a $30 a month Adobe Apps subscription that I would consider a mandatory expense for my job. Now, since these are mandatory, it's very hard to lower their costs. But two tips I do have. First, you can negotiate a lot of your bills or at least shop around to get the best price. There's all those ads about how like you can save 15% or more on car insurance by switching to Geico or whatever. Don't necessarily go to Geico, but at least get a quote from a couple different insurance companies or phone companies and see who gives the better price for the same service. Also, a lot of phone companies will lower your bill if you call them. Say you're going to cancel because the price is too high. And my second tip is to try to reduce your tuition costs by applying to as many scholarships as you can. There are millions of dollars of unclaimed scholarships out there, so go ahead and claim them. Also, if you're qualifying for financial aid, you might be able to negotiate a better offer from your financial aid office. Maybe send them new documents of your family income status. Or if you are an incoming freshman and you got a better offer at one school than another, send them the competing offer and make them fight to have you as a student. Don't be afraid to be pushy and ask for more because you're worth it. You're not inconveniencing anyone by just asking for what you want and need. The 30% category we have is nice to have spending, which is anything that is optional. This includes going out to eat with your friends or a gym membership. Personally, I have a Spotify family subscription. Hopefully Spotify is not watching this video because I definitely don't have a six-sibling multiracial family that lives at my high school, but no one heard that from me, right? I personally find it unhealthy to micromanage every single bit of your fun money. You don't have to limit yourself to exactly $25.43 on coffee per month and exactly $49 on new clothes. You just need to keep the category as a whole under control. It doesn't hurt to treat yourself every now and then, but just make sure this doesn't cut into you going into debt for your mandatory expenses or putting way too little in savings. Here's one thing I found really helpful in reducing my spending for fun category, which has been not to buy things because they're on sale. Instead, I identify what I want and then wait for it to go on sale. Sales are just a tactic to try to make you think, oh this is cheaper so I should buy it, even though you never wanted it in the first place. So just don't fall victim to that and use coupon codes whenever you can. Also, just getting into minimalism, changing the emotional relationship you have with objects is really helpful for reducing unnecessary spending. I'll link some tips about that in the description and the cards. One thing you might be interested in learning about when it comes to spending money is credit cards. These can be a good way to boost your credit score if you think you can use them responsibly and avoid going into debt. I wouldn't recommend them if you don't think you'll be responsible enough to pay them off in full every single month instead of spending money that you don't have. Basically, a credit card should be seen as a month-long loan that you just pay off in full each month. That way you don't have to pay any interest. It's especially helpful to just set it to auto pay so you never have to worry about accidentally forgetting and then running up late fees and interest. The reason I think a credit card can be valuable, especially for young people, is that credit cards can be used to build up a credit score. What a credit score is, is a number that is assigned to you. It's used by lenders to determine how trustworthy you would be with a loan. Having a good credit score can allow you to qualify to better credit cards with more benefits and they're especially important if you think you'll be buying a car and needing a car loan or buying a home and needing a mortgage because a higher score means you'll get a lower interest rate. As I mentioned, they also do have some perks like travel points or cash back. If you're brand new to the credit world, you probably don't have a score and can't qualify for most credit cards. What I recommend you do is apply to a student credit card if you're a student. They're designed for beginners who don't have a credit history yet. Or you could apply to a secured credit card where you put down a certain amount of money as a deposit and in return you'll get a line of credit in the same amount that you put down. I just want to emphasize again, don't do this unless you're certain that you will be responsible enough to pay it off in full and not go into credit card debt which has insanely high interest rates. First, let's start with general savings and this is where you can save up for your short to medium term goals. Now what I mean by short term is three-ish years and medium would be like 10 years. I know that sounds like a long time frame but this is the kind of time frame that personal finance operates on. It's really not a universe of instant gratification unfortunately, unless you're playing with get-rich-quick schemes that almost always end up being scams and frauds and you just lose money anyways. For your general savings, for any money you plan to be spending in the next 10 or fewer years, I would recommend a high-yield savings account. Usually you can get a pretty good interest rate from an online bank which I know sounds kind of sketchy but online banks are reputable. Just make sure they're FDIC insured. Here in the U.S., the FDIC, a federal commission, can't remember what the other letters stand for, will insure certain bank accounts for up to $250,000. The benefit of a high-yield savings account is that you get a much higher interest rate than in a checking account but it's a lot less risky than something like investments. This is because the money doesn't go into an investment like a stock or bond, which I will explain later. It just sits in the financial institution of the bank who does their own thing with it but you are guaranteed to get it back in the exact amount you put in or more. Now your first savings goal should be an emergency fund of three to five months of expenses because even if you're meticulous with your savings, you never know what kind of unexpected wrench can be thrown in your plans. Like maybe you break your ankle and you have to pay medical bills or your car suddenly gives out and you have to get a new one. It's kind of like having some sort of padding when you're going into a sports game. It just makes all of the punches hurt less. After you saved up this emergency fund, you can start contributing towards whatever saving goals interest you. Maybe you want to save for a new car or a down payment on a home or a really nice vacation. It's really up to you. However, for any saving goals that are in the time frame of decades, like retirement, you might want to consider investing instead of putting your money in a high-yield savings account. The main investments that I'm referring to are stocks and bonds. What a stock is, is basically owning a little tiny tiny bit of a company. The worth of your individual stocks are based on the market's perceived value of that company as a whole, but then just divided into the little sections. Now most of us are not going to be owning enough stocks to actually have a say in what the company is doing as a board member. It's just like buying something for $100 and maybe if you're really lucky you'll be able to sell it for $150 or maybe if things go south you'll have to sell it for $90. A bond is like an agreement with either a very large corporation or a government. For example, I'm going to use very hypothetical impossible numbers for this one, but let's say the U.S. government is like, hey buddy we need money. You want to give us $20? And then you say, yes U.S. government I will give you $20 in exchange for the promise that in five or ten years you'll give me back $25. Both of these have a greater potential for return on investment than something like a high-yield savings account, but they are a bit riskier. Stocks are risky because, as we've seen many many times, the market sometimes just goes pfft. Generally the higher the risk, the higher the potential reward. It's up to you to decide how much risk you're willing to take. But going back to what I was saying about using investments for longer-term savings goals, the reason I think investing is a better idea for longer-term goals but not really for short-term goals is because if you have a long time spent in a market like the stocks market or the bonds market, you also have a lot of time to weather those weekly, monthly, yearly ups and downs. Even though we've had some catastrophic drops and impossible rises in the market as we've seen during this COVID crisis, in general as a long-term trend the stock market as a whole will make an 11% return before inflation or 8% after inflation. So for a long-term goal, the stock market could be a good option. But it is important to note that this fairly consistent return on investment doesn't apply to picking individual stocks. Picking individual stocks is a lot of work and very risky. If you're like me and you're vaguely into personal finance but you don't want to spend your whole life reading finance news and researching, this is not really a good option for you. Instead, I recommend a broad index fund that aims to represent the entire market. That way you can take advantage of those averaged out 8% returns. You can open your own retirement account. You can have a 401k that is tied to an employer or you can have an individual retirement account that's called an IRA. The reason you may want to invest with a retirement account is that it is tax advantaged. I don't fully know what that means to be quite honest, but the gist of it is that you pay less in taxes on a retirement account because the government wants to help you out and not have you be stuck on government benefits because you're broke when you're old. So within that retirement account, you can do your investing and stuff while saving some money on tax breaks, but you just can't take the money out until you're 59 and a half. Or you could, but I wouldn't recommend it because it comes with a lot of heavy penalty fees. Now if you're about my age, you might be thinking, retirement? That's like four million years away. But the thing about investing is that interest is compounded over time. So the earlier you start the better. I'll show some graphs and numbers on screen right now that show you just how powerful compound interest can be. Just start now even if you can't put in that much because the $100 you put in each month when you're 18, 19, or 20 are ultimately going to be a lot more valuable than maybe a thousand dollars you put in every month when you're 60 thanks to the power of compound interest. Now this was just a very very simplified and basic version of personal finance. There are a lot more resources out there that I recommend you look into. I'll put some of my favorite books and websites in the description box for you to check out. Also, if you'd like me to make more videos about this topic, just let me know what your questions are. And just one last reminder to check out the link in the description for 20% off a Grammarly premium subscription. I hope you found this helpful and I upload new videos every week. Also, you can check out my Instagram at studyquill where I post photos of my notes and bullet journal. See you next time.