10 Crucial Personal Finance Lessons That Transformed My Life

• 10 key lessons in personal finance.
• Delayed gratification is crucial for success.
• Track your expenses, savings rate, and net worth.
• Investing should be boring and simple.
• Avoid comparing your financial situation with others.
• Understand your personal risk profile.

Hey guys, welcome back to the channel. In this video, I'm going over 10 key lessons in personal finance that have transformed my life. And I think that they will transform yours as well, as long as you put them into place.

So let's waste no time here and get into personal finance lesson number one, which is that delayed gratification is crucial to everything. If you can resist the temptation of an immediate reward, then usually your payoff will be a lot greater later on in life. This happens often in the investing world.

So let's say you invest in the stock market. If you buy and hold for a very long time, let's say 10, 30, or even 50 years, the bigger your gains are gonna be. It's the same reason why so many financial experts recommend not touching your savings or your 401k. Because they know that if you have your money in one of those accounts, the longer that it has to compound, it usually is better for your retirement.

In terms of everyday purchases, delayed gratification can be boiled down to a simple phrase: if you can't buy it twice, don't buy it. So hopefully that phrase is pretty self-explanatory. But if you can buy an item twice, then that probably means you're in a pretty good financial position to buy that said item.

For example, let's pretend you want to buy something worth $100, like a new Xbox or PS5, and you can afford it once. But if the idea of a purchase over $1,000 seems daunting, that's when I'd probably argue you can't afford the $500 purchase in the first place.

Because if the thousand-dollar purchase makes you uncomfortable, then it's probably not a good idea. Delayed gratification can also help with your decision-making. I find that whenever you have a decision presented to you, and especially if it's a big decision in your life, such as a career change, if you zoom out 10 or 20 years, usually the picture becomes much clearer.

I personally remember a situation at work that I was in. I was working in the monetization department at a mobile video game company and I wanted to switch to marketing because they had a higher base salary for their employees. The short-term thinking in me wanted the extra salary of $10,000 or $20,000 by switching over to marketing and doing roughly the same amount of work.

But then I thought, "If I zoom out 10 or 20 years, I don't really want to be doing marketing in 20 years." So it really didn't make any sense for me. If you can combine long-term thinking and delayed gratification, that's when I think you become unstoppable in life.

Personal finance lesson number two is to track three numbers. I like to call them the big three: your expenses, your savings rate, and your net worth. I find that if you're able to track these three numbers and make improvements over time, your personal financial position will just get better and better.

And there's no doubt in my mind that you will become financially free. When it comes to your expenses, the first thing you want to track are your fixed expenses. So things like transportation, housing, utilities, and healthcare insurance, etc. You want to make sure that as a percentage of your income, they are not more than 50% to 60%.

If they are larger than 60% of your income, that's when things get a little dicey, and you might not have enough money in your other parts of your budget for things like discretionary expenses or even savings and investments.

When it comes to discretionary expenses, I like to keep my personal expenses in check. I do that by tracking everything that I spend and having frequent check-ins throughout the month. Let's say your target spend per month is $1,500 in discretionary expenses. Then on the 15th of the month, your discretionary expenses should be around $750.

Now, if you are ahead of that, say you've spent $800 or even $900 by the 15th, you know you need to cut back for the rest of the month. When it comes to tracking your personal savings rate percentage, aim for a savings rate of around 10% and then slowly ramp it up from there.

Ideally, if you're tracking your savings rate, you will be more aware of it and hopefully, it will go up over time because as your savings rate increases, that means you're going to have more money for activities like investing.

Now speaking of net worth, this is the last number that I like to track and the whole idea of tracking it is mostly for peace of mind. I think it's a wonderful thing to track because it will give you perspective on your financial life. Sometimes I'll look back at my expense tracker from 2021 or 2020 to see how much my net worth has grown over the years.

If you'd like a link to my own net worth tracker, I created one a couple of years ago and made it completely free. I will leave a link to that down below in the description.

Personal finance lesson number three that transformed my life is that you don't actually have to invest in too many things. I see this situation a lot with some of my friends and subscribers. Many investment portfolios often include way too many ETFs and stocks for their own good.

People think they're doing a good job by investing in 10 or 12 ETFs. But the thing is usually they have overlapping holdings with one another. For example, if you took the ticker symbol VO, which is Vanguard's S&P 500 ETF, and then you also bought VOE, which is Vanguard's mid-cap value ETF, 92.1% of VOE's holdings are in VO already.

So while you think you could be diversifying your portfolio by investing in a bunch of ETFs, you could actually be doing the opposite and probably causing more harm than good. Most index-tracking ETFs are super simple and well-diversified. So often you just need one, two, or maybe even a maximum of three. If you have way more than that, you might just be making it more confusing for yourself.

Investing should be simple and passive. Most casual investors who just buy an S&P 500 ETF, for example, would have outperformed 92% of large active fund managers over the past 15 years, according to S&P Global.

Alright, personal finance lesson number four today is to be aware of big purchases that are depreciating assets. We all know that things like cars depreciate, but other things do as well, such as jewelry, watches, clothing, books, smartphones, and even computers.

If you're spending money on one of these assets that are depreciating, the worst thing you can do is borrow money to finance it. Because at that point, you are borrowing money from a bank at a high interest rate, and you are not only paying the bank to finance your purchase, but you're financing something that is going down in value over time. You are paying money to lose money.

Now, I'm usually referring to things like jewelry, clothing, or even furniture. I mean, when was the last time you bought a new couch for $2,000? But then only three years later, you throw it up on Facebook Marketplace and sell it for $200. You just lost $1,800 on your purchase.

Plus, the fact they might not even pick it up. Have you ever talked to someone on Facebook Marketplace? They literally say they're coming and then ghost you. It's a whole emotional roller coaster.

Alright, enough with Facebook Marketplace. Let's get into personal finance lesson number five, which is that if you invest for more than 20 years, it should typically yield positive results.

In an infamous blog post on Dollars and Data, there's a strong argument for why the retail investor should stay invested over a long period of time. The author points out that as stocks get more expensive, using the P/E ratio to gauge whether a stock is expensive or not, as the P/E ratio goes up, future returns generally decrease.

And this makes sense. If you buy an overvalued stock, it probably won't return as high as if you bought an undervalued stock. You can see that as P/E ratios increase, there is a negative correlation with your returns for the next five years. There are more red dots in the 30 to 40 P/E range than the 10 to 20 range, indicating negative returns.

But the fascinating thing here is that as long as you hold for a longer period, you can see that as the years pass—5, 10, 15, 20, 25, etc.—the number of red dots slowly decreases. The author states that “over any 20-year period, US stocks have had no real negative returns when including dividends.”

And over a 30-year period, the returns have generally converged despite some dispersion. So he's basically telling us that if we want to accumulate our wealth, we should just keep buying into the stock market. As long as our holding period can be longer than 20 years, it’s unlikely that we're going to lose money.

Often people think the stock market is overvalued and then they end up not investing at all. The author used an excellent example in his blog post. In 2012, many believed the market was overpriced by 50%. But if you look at this graph from the S&P in 2012, it was trading around the 1400 level. If you had believed it was overpriced back then, you would have missed out on serious gains over the past 10 years.

Personal finance lesson number six is that saving money is very important. Yes, but at the beginning, it's the most important. Something that's not so obvious to people is that making money has nothing to do with how good their investments do or how their business venture performs.

When you don't have much to your name, what you should be doing is relentlessly saving. The whole idea of this is that you want to build up an initial nest egg so that it can compound for you later on, and then your money can make money for itself.

So famously, the first $100k will probably be more comprised of savings rather than investment returns. If we look at this calculator from the Four Pillar Freedom blog, if you save $13,000 a year for six years and achieve a 7.5% return on your savings, you will have $101,000 after six years. But guess what? 77% of that $101k will be comprised of savings.

In another case, if you save $10,000 per year and average an even higher return of 10%, it will take you seven years at a 10% return. But your savings will still comprise 67% of your total $104,000 balance at the end.

With compound interest, we all know that friction is in the very beginning. So if you are able to save money when you have no money to your name, every dollar is going to be worth more for you in the future because it's working for you as it compounds.

There really is no secret to getting over the hump. Getting your initial nest egg going takes a lot of discipline and diligence, so if you are new to it, just stick with it.

Personal finance lesson number seven that transformed my life is that investing should be boring. You likely aren't going to get rich by day trading, but what will get you wealthy over the long term is buying and holding into an index fund and simply forgetting about it.

I want to share with you guys a snippet from a podcast with the author of 'The Psychology of Money', Morgan Housel. He said, “successful investing is when you lose the password to your investment account.” Yes, that's exactly it. I don't think you said that in there, but when I lose the password to my investment account, I'm so proud of myself because it means I haven't checked it in forever.

This is really true. We should aim to forget our investment account passwords as long as we are well diversified in our total investing portfolio. If you are invested for a 10, 20, or even 30-year time horizon and beyond, the best thing you can do is hold and continue to dollar-cost average into those investments. This means continue contributing and investing.

This strategy is boring and average. I get it. But listen to this next quote from the same podcast on why you shouldn't try to beat the market and just aim for average returns.

"I think it's extremely difficult to beat the market, and very few people will do it. But I think there are really smart people who can do it and people who I know I could invest with. The reason I don't is not because I don't believe it can be done; it's because the variable that I want to maximize in my investments is endurance. If I can just earn average returns for an above-average period of time, it's going to lead to an amount of success that will literally put you in the top 5% of investors."

So yeah, right there you have it—top 5% of all investors. Just by being average and doing boring things, such as investing in an index fund and stepping away.

Personal finance lesson number eight today is to not pay attention to your peers. Not in terms of life. You definitely want to pay attention to them, but don't compare yourself to others. Personal finance is a lifelong pursuit, and you might be tempted to draw comparisons to others in your life, such as friends, colleagues, or even people your age.

With social media these days, it's front and center. But it's important to remember that everyone is on their own path. Your situation might be a lot different than your friend's situation, and your goals are going to be completely different as well.

The truth is that no one is just going to show you their bank account and say, "Yo, this is how much money I have. You should feel bad about yourself." No, that's not going to happen. Drawing a comparison is just going to waste your time and mental energy.

Some people love spending everything that they make, others love saving everything they make, and some are just in between. And when it comes to spending, everyone has different values as well. It's easier said than done, but I find that if I'm not comparing myself to other people, my impulse purchases go down.

Personal finance lesson number nine today is along the same vein: to avoid becoming a 30k millionaire. This is a phrase I learned about in Texas. According to Urban Dictionary, a 30k millionaire is someone who makes $30,000 per year but acts like they make millions.

For example, check out this 30k millionaire driving a low-end BMW but still living at home with their parents. Or someone who goes to a club, pays for the VIP table, and then can't afford any drinks because they spent all their money on the table.

The lesson here is that people who appear to have money probably don't, and wealthy individuals who do have money generally won't dress or act like it at all. According to a study of millionaires, most wealthy people live well below their means.

A good quote from 'The Millionaire Next Door' is: "If your goal is to become financially secure, you'll likely attain it. But if your motive is to make money to spend on the good life, you're never going to make it."

It's a good reminder that if we focus on our own goals and live within our means, we will probably hit financial freedom and security—that's probably what you want. Don't become the 30k millionaire at all.

Personal finance lesson number ten that changed my life is that what's risky for you is not risky for someone else, and vice versa. Just like not comparing yourself to others, don’t make the same decisions as someone else just because they do.

Your risk profile is going to be very different than, let's say, your neighbor's. You want to make sure that if you're getting financial information or advice from anybody, you're doing your own critical thinking and really considering if it makes sense for you.

General advice is not a one-size-fits-all. Even on this channel or any other YouTube channel, you should always apply a filter to it like, "Is this decision right for me?" I don't mind if you’re getting inspiration and ideas from online, friends, or wherever—you just want to be conscious of whatever you put in place in your life.

Alright, those were my top 10 personal finance lessons. Let me know what you thought in the comments. You might want to check out this video right here; it's on the 21 money lessons everyone should know to be financially literate. Make sure to hit the subscribe button on the channel down below.

It takes 0.1 seconds, and I will see you guys in the next video, or that video. Alright, peace.