Happiness and Financial Literacy
I made an important discovery: As I got older, I became happier when I became more financially secured. Financial literacy, the ability to understand and effectively apply various financial skills (investopedia), therefore, is a prerequisite to happiness.
The idea that financial security leads to happiness is supported by a Princeton study (2009) which found, “financial security, more than money alone, may be key to happiness” as the title of that article goes. Money might not be the answer to all of our problems—and it cannot, by itself, lead to happiness—but a sense of financial security does contribute to overall happiness.
A more recent article published in 2017 by Psychology Today said that focusing on financial security—not on contentment and joy from money—can make us happy. So how do you achieve financial security? At the most basic level, financial security is achieved through financial literacy.
What is Financial Literacy?
Financial literacy, according to investopedia, is “the ability to understand and effectively apply various financial skills, including personal finance management, budgeting, and investing.” My hope is to make every reader of my blog become financially literate. Because by being proactive about financial literacy (i.e., initiate learning about personal finance), you can achieve financial security faster.
Disclaimer: I am not a professional financial advisor. Anything I say in this article is strictly my opinion and not a professional advice. It is your responsibility to do a thorough research, in consultation with a professional (preferably a fiduciary financial advisor who abide by fiduciary duty. They act only in your best interest).
One big problem with financial literacy is that conversations about money and finances are taboo in many settings. People avoid talking about money. So what is a Filipino to do if no one wants to help out? You have to figure things on your own. You have to Do It Yourself (DIY). If tita Gloria doesn’t want to share how she got her millions, then you will just have to DIY.
Tons of financial resources are available online. The internet has been a blessing in this regard. But there is a danger. You can get lost in the rabbit hole of personal finance information. And, quite frankly, many people online who talk about money are, themselves, trying to make money.
I’m here to guide you to the right resources. Let’s review a few basics.
Personal Finance Basics
What is a budget?
A budget is “an estimate of your income and expenses”, according to money guru Dave Ramsey. It is, “a way to balance income, expenses and financial goals for a specific length of time” (Nerdwallet). More importantly, “budgeting is the process of creating a plan on how to best use your money” (Money Coach). Dave Ramsey has an easy-to-follow guide on how to create a budget at www.daveramsey.com/get-started/budget. Nerdwallet, one of my favorite websites for introductory lessons on finance, has a concise guide to building a budget. Check it out.
My Tips on Budgeting
- Create a list of your income and expenses each month.
- Set aside money to save (a certain % of your paycheck perhaps) before paying bills.
- Pay your fixed expenses first (monthly bills that doesn’t change such as rent, insurance, internet bill, etc.)
- Focus on paying off your debt.
What is an interest?
Interest is “the cost of using somebody’s money, usually calculated as a percentage of the money being borrowed” (The Balance). For example, if you borrow $100.00 from a bank with an interest of 10%, the interest is $1.00, usually charged monthly.
My dear mother hates interest with a passion. If she uses her credit card (only to build credit, or course), she makes sure to pay it off each month. You should too. Most banks will give you a grace period, a certain number of days to pay prior to charging an interest.
Avoid interest as much as possible.
What is debt?
Debt is, “money owed by one party to another” (Nerdwallet). So if you borrow money from a bank, you have a debt to be paid to that bank.
In 2018, the Federal Reserve reported that total consumer debt of Americans have reached $3.95 trillion dollars. Yikes! What is scarier is that, according to Northwest Mutual, 40% of Americans spend up to half of their monthly income in debt repayments. Double yikes! Your goal should be to have less debt.
Pay as much as possible in cash.
What are stocks?
Stocks (also called equity) are a type of security that gives stockholders (you) a share of ownership in a publicly traded company. If you buy a company’s stocks, you own a portion of that company.
I can sense your excitement. For now, don’t worry about which stocks to buy. Unless you are a professional trader, I don’t advocate buying stocks from a single publicly traded company. I’m all about index funds (more on this later).
To learn more about stocks, why people buy stocks, or why companies issue stocks, etc., visit the Security and Exchange Commision (SEC) website on investing: https://www.investor.gov/introduction-investing/basics/investment-products/stocks
The investing authority website investopedia.com has a great resource on how to start investing in stocks: https://www.investopedia.com/articles/basics/06/invest1000.asp. The website will help you understand how investing works.
In no way am I advocating for you to start investing your money based on the information you just read. Like I said, DO NOT BUY STOCKS FROM A SINGLE COMPANY. Please read further before making any investment decisions.
So I just shared with you a very small slice of the financial literacy iceberg. For more easy to read explanation on how to budget, how debt works, types of accounts and such, read FI Me Outta Here’s a Simple Beginner’s Guide to Financial Literacy
Diving Deep into Personal Finance
As a Filipino immigrant who came to America as a young teen, I’ve tried many ways to be happy. I played video games on my spare time, made friends with like-minded teens, read books about Buddhism and Psychology, and earned a Psychology degree among others. But those never cured my anxiety about the future. A growing investment accounts did!
How did I do it? What resources did I use? The information below will give you the resources I used. It will make you a better consumer and saver. I know of people who used these resources and found great successes with their finances. They have become financially secured.
A word of caution: Financial resources—website, blog, or article—that focus only on generating and investing money but minimizes or dismisses frugality (“kuripot” in Filipino) should immediately be avoid.
Being frugal or “kuripot” is fundamental to becoming financially secured. If you can’t be frugal, and you can’t resist spending money on shiny things, then you’ll never achieve financial security.
Financial Independence Blogs
To begin your self-education, start reading finance blogs. Not all are boring reads. Some are really engaging and fun. The most sensible money bloggers (those who preach being kuripot) are those who follow the Financial Independence Retire Early (FIRE) movement. Don’t get suspicious with the “retire early” part, these folks are not salespeople making promises of wealth. No, these bloggers are serious about saving and investing. In fact, they are dead serious that some even forego owning a house in order to save. Many of them save more than 50% of their income!
If you are serious about becoming financially secured (and wealthy perhaps?) then follow financial independence bloggers and learn how to save and invest the smart way. You don’t have to set a goal of retiring at 35 or saving 50% of your income per se, but you should emulate their strategies. They are the most frugal people out there. And they advocate passive investing.
To get started, check out JL Collins, often considered the Godfather of Financial Independence. He coined the term “FU money” which is the amount of money needed to give your boss the finger, metaphorically speaking (not advisable, of course, haha…) Check out this funny video of JL Collin explaining FU money. Watch this Google Talk interview of him in which he explained the simple and passive way to reach financial independence.
Your savings and investments are closely tied to the economy and the stock market. Therefore, you should learn about stocks. You can borrow books about stocks and investing at your local library, or… you can read JL Collins’s Stock Series. His articles are well written—concise and humorous. After reading, you will be able to start investing in a smart way.
Mr. Money Mustache
A fun FIRE blogger to follow, especially if you want to learn ways to save your hard earned money, is Mr. Money Mustache Peter Adeney. He provides tons of valuable FREE information on his site. No, Mr. Money Mustache does not offer courses or ask for membership fees. He is a legit early retiree. By “living a lifestyle 50% less expensive than their peers,” according to Mr. Money Mustache, he and his wife were able to retire at the tender age of… get ready… 30! (Whaaa?) Again, you don’t have to do exactly what Pete has done, but you will benefit tremendously if you follow some of his strategies.
Does the term “investing” sounds intimidating or confusing? You can thank the financial advisors you spoke with at your local bank. They made you feel like you’ll lose money without their secret investment strategy. But you don’t need them. You can learn how to invest yourself. I’d like to introduce to you the globetrotting husband and wife from Millennial Revolution Bryce and Kristy. You will understand how investing works and how to invest your money wisely by completing their investment workshop. Again, this resource is free! Bryce and Kristy are true rebels…investing rebels, that is.
Personal Finance Books
A good introduction to the core principles of wealth accumulation is the book Rich Dad, Poor Dad by Robert Kiyosaki. One of my favorite quotes from Robert is, “The single most powerful asset we all have is our mind. If it is trained well, it can create enormous wealth in what seems to be an instant.” Here is a summary from Four Minute books of Rich Dad Poor Dad. It’s an easy read from an authority in personal finance.
Millionaire Next Door
If you want to read about research-backed data on millionaires in America, check out the classic Millionaire Next Door by Thomas J. Stanley and William D. Danko. Contrary to popular belief and mainstream culture, many Millionaires don’t drive expensive cars and own big houses. And most millionaires also did not become rich by their parents’ wealth. Most are first generation millionaires. Many own businesses but equally so have regular nine-to-five jobs. Do you want to know the secret? Save a high percentage (15% or more) of your income. Be frugal. And do not buy things you can’t afford. You can find out for yourself by reading the a Millionaire Next Door.
The Simple Path to Wealth
The traditional advice is to save at least 15% of your income. But common sense tells us that the higher your savings rate, the faster your money will grow invested in the right investment vehicles. A group of extreme savers who are part of the FIRE movement, which stands for Financial Independence Retire Early, suggest to invest as much as 50% of your hard earned money in index funds or high yield savings accounts. You can even retire early. To learn more about this, I highly recommend The Simple Path to Wealth by JL Collins. You can also go to his website to read his materials for free, but the book is a more concise version of the core concept he teaches in his stock series.
Quit Like a Millionaire
A good introduction to passive investing, saving at a high rate, and–maybe–ultimately saving a million dollars sooner than others might expect is the book: Quit like a Millionaire by the husband and wife duo from Millennial Revolution. You don’t need to follow every single advice they give, or emulate what they have done to retire in their 30’s, but you can take the principles they lived by of being frugal and investing passively in index stocks to amass a good amount of wealth and feel a sense of financial security.
The Richest Man in Babylon
One of the earlier books about finance, often considered a classic, is a short story titled The Richest Man in Babylon. Saving money should be simple and uncomplicated. This 144-page book will get you in the right mindset about money and savings. George S. Clason’s advice is to save 10% of everything you earn and learn to differentiate what is necessary and what you desire. You have so many more to worry in life, the strategy of saving should be simple so that all you have to do is set aside your money and watch it grow.
The 7 Simple Rules of Money
from the book The Richest Man in Babylon
- Start thy purse to fattening: save money.
- Control thy expenditures: don’t spend more than you need.
- Make thy gold multiply: invest wisely.
- Guard thy treasures from loss: avoid investments that sound too good to be true.
- Make of thy dwelling a profitable investment: own your home.
- Ensure a future income: protect yourself with life insurance.
- Improve thy ability to earn: strive to become wiser and more knowledgable.
You can read a summary of The Richest Man in Babylon in James Clear’s website here
Get a Financial Life
A great book for millennials that has been around for more than 2 decades and that has been updated many times is Get a Financial Life: Personal Finance in Your Twenties and Thirties by Beth Kobliner. Whether you’re trying to understand taxes or want to find ways to increase your credit score, this book is an easy-to-follow introductory personal finance for everyone, but has been marketed to millennials.
- I will teach you to be rich by Ramit Sethi – called a “wealth wizard” by Forbes, Ramit provides easy to follow guilt-free advice on saving and building wealth.
- Automatic Millionaire by David Bach – advocates paying yourself first automatically, secure your future and pay for your present without worrying about a budget, willpower, and making a lot of money.
- Why Didn’t They Teach Me This in School by Cary Seigel – a great graduation gift for both college and high school graduates. It’s the money management lessons developed for young adults.
- Financial Freedom by Grant Sabatier – inspiring story by the author who reached financial independence by the age of 30. Grant share a step-by-step path to make more money in less time so you can enjoy more of the things you love.
Financial Literacy Books by Filipino Authors
I have to be honest. I have not read any of the personal finance books written by Filipino authors based in the Philippines. So I crawl through the Internet to find you the most mentioned and highly recommended books.
Bo Sanchez’s The Turtle Always Wins and My Maid Invest in the Stock Market are the books that pop up a lot. First of all, I would say 99% of Filipino immigrants in America don’t have maids. So the title might be a little confusing, but I understand the marketing behind. Basically, anyone can invest in the stock market, is what Bo is saying. Bo Sanchez is a very popular personality in the self-help industry in the Philippines.
Financial Literacy is an Active Process
Financial literacy is an active process. Don’t settle on books in the comfort of your home. Finance is an ever evolving topic. You must update your knowledge on this matter. Most importantly, find support, allies and like-minded friends. Join finance groups, clubs, etc.
Don’t wait for luck and opportunities find you. Go out there and let the power of human connection elevate your game. Find like-minded people who can connect you to other folks who can benefit from your talent and skills. The internet provides an abundant opportunity to connect with others. Whether it’s websites like www.meetup.com or Facebook groups, you can find a group that caters to your interests and passion.
I have to caution you, however, that social media is a double-edged sword. They can help you increase your network and visibility, but they can be a great source of distraction also. I will have another article on focus and concentration later this year. Stay tuned!
I know it’s a long article, but I want you to have these resources to get started. Most importantly, I want to encourage you to start saving and investing early. Financial literacy is CRITICAL to a happy life. Take initiative and go get it!
What is your belief about wealth accumulation? How confident are you that you will achieve financial security in the near future? Comment at below to share your answer to these questions. Or if you have ang questions, feel free to email me anytime at firstname.lastname@example.org
You might also be interested in reading my other article: 5 Ways to Become a More Productive Filipino in 2020