Understand the basics, empowering you to navigate more complex topics with confidence. personal finance a guide to financial freedom We have all dreamt of freedom. For some, it might mean pursuing a particular career path or discovering hidden destinations, for others, spending time with loved ones. Perhaps, dedicating time to that hobby of yours. We encourage you to determine: What does freedom look like to you? “A dream written down with a date becomes a goal” Greg Reid organization The key to personal finance is awareness. The best way to be aware, is to be organized. There are multiple strategies to achieve this, however, we recommend starting off simple: 1-. Cash flow Administrating your cash flow correctly is perhaps the most important step you could take towards fina ncial freedom . How? List your monthly inflows (money going in) and outflows (money going out) in separate columns, in descending order from largest to smallest. Try to account for and list every recurring expense or income you can think of. am I spending more than I should? Discover budgeting Experts recommend distributing expenses in the following manner 55% : Essentials This is the category for all that you consider really necessary, like debt, taxes, mortgages, food and education. 10%: Emergency funds and insurance This category is meant to provide safety for the future. In this course, we will later explain insurances, but if you, for now, do not feel in a position to hire them, it is important to have a least a savings account from which you can quickly withdraw money in case of emergencies like unexpected medical procedures, a problem with your car, or needing to bail out of jail. 10% Investment This category is meant to, with time, augment your income, net worth, and allow you to retire. We will expand on it further in the “aggressive shark” course. 10% Long term savings / Retirement Accounts This is meant to allow you to retire. 15%: Leisure This category is for everything that you spend for pleasure, meaning fine dining, new clothing and expenses. It is undeniable that having this is necessary for a healthy life. Still, it isn’t healthy to spend more than 15% of your income on it. Recommended monthly expenditure diagram Input your income and expenses, and let it handle the calculations and generate a customized diagram for easy comparison. build your diagram Access Aninvestor's free template here! Cash Flow Template steps you can take to improve your diagram Notice what sections are consuming more than they should High Levels of Debt will be addressed further down 2. D etermine w hat can be done to reduce this expenditure. Perhaps your rent is too high 3. You may need to create a new section and allocate funds to it Open an emergency fund Bear in mind the opportunity cost of modifying your expenditure. You shouldn’t, for example, sacrifice education to increase your investments. Weigh your options and think about the long term results. “Constructing wealth is not a matter of intelligence, it's a matter of habits” 2-. Calendar A missing payment h as important consequences, such as: Penalizing interest payments Hindering loan accessibility Structuring a financial calendar will help you avoid them, and manage to build your credit at the same time. How? Choose the method that works best for you: paper or digital. If you choose to go with the latter, we suggest working with “Google Calendar” , where you can set friendly reminders. Next, from the outflows column in your Cash Flow Template, identify constant expenses that have payment dates and schedule them down in your calendar for the next month. Repeat this process for at least three months. Organization Takeaways Organization lets you be in control of your expenses and not the other way around. Having systems like these in place will allow you to: 1-. Identify anomalies 2-. Establish budgets But most importantly, 3-. Set the foundations for your financial goals. “It is easy to let expenses go unchecked and opportunities go unnoticed.” debt Whenever we apply for a mortgage, a student loan, or a car loan, we are dealing with debt. The easiest way to grasp this concept is to analyze it from an example with two distinct perspectives: 1-. The Borrower (you) Lets say you discover the perfect house for you and your family. You ask for the price, and... the house can be yours for: $100,000.00 dollars. You do not have access to that amount of money. So, what do you do? You go to the bank and ask for a loan. Loans for the purchase of houses are called mortgages. This is what they say: We will give you a mortgage for your home if you accept the following terms. Mortgage Agreement Contract Example 1-. Your down payment will be 20% 2-. Your interest rate will be 5% 3-. Your loan term will be 30 years 4-. Your monthly payment will be $429.46 dollars 5. The bank will own an interest in the home until the mortgage is fully paid off. Sign here _________________________ This content is purely informative and should not be interpreted any other way. Please consult an expert prior to making decisions. 1 DOWN PAYMENT The down payment is the percentage of the value of the asset (in this case the house) you will have to pay upfront. In this case, 20% of 100,000.00 is $20,000. You are really borrowing $80,000.00 dollars from the bank. 2 INTEREST RATE By providing you a mortgage, the bank is offering you a service. The interest rate is the “price” the bank is charging you for borrowing their money. The lower the interest rate, the better the deal. Note: Selecting a fixed interest rate (does not change) is encouraged by experts, as it protects from extreme volatility. Even though it can be more expensive, it really is worth considering. 3 The loan term simply refers to the amount of years until you pay off your mortgage, in this case 30 years. TERM 4 Throughout the loan term, you will have to pay $429.46 dollars each month. MONTHLY PAYMENT 5 OWNERSHIP The bank will own an interest in the home until the mortgage is fully paid off. 2-. The lender (most likely the bank) The borrower walks into the bank and insists he wants a beautiful house. He explains that unfortunately he does not have enough money to purchase it. Suddenly the bank remembers it has $80,000.00 dollars in the vault. As time goes by, that money is losing value because of factors that will be explained after. By offering a mortgage, or any kind of loan really, the bank can avoid that loss and even make money in exchange for an interest payment from the borrower. The interest rate depends on: 1-. Current market conditions 2-. Default risk (the borrower stops paying ) Most of the times, the higher the interest rate, the higher the profit the bank will make on the deal. how much will the lender make on this deal? Lets recall point number 4 (monthly payments). Remember the payments of $429.46 dollars? Let's see how much does the borrower ends up paying in total... If you recall, the borrower only borrowed $80,000.00 for the house. Well, it turns out that the difference between what the borrower ends up paying and the original borrowed quantity is the lenders profit in present value. $429.46 x 360 (number of monthly payments in 30 years) = $154,605.6 $154,605.6 - $80,000.00 = $74,605.6 Both parties agree to the loan and walk away happy. tackling debt There are multiple strategies to deal with debt. Before we outline them, we must thoroughly inspect our "montly payment". Once you pay the $429.46 dollars, it is split in two different sections: Principal (red): The part of the monthly payment that goes towards paying the original $80,000.00 Interest (blue): The part of the monthly payment that goes towards paying the bank. A mortization tables and graphs help us visualize the distribution of our payment throughout the loan term. Remember those risks we talked about. By structuring the mortgage like this, the lender basically prioritizes the interest payment. Besides, in the event of default, the bank can seize the property, resell it and regain what it lent, a process commonly known as foreclosure. 1. Principal increases. 2. Interest decreases. Can you spot the trend over time? why does this make sense? W hen deciding to pay off a pending loan, determine whet her you are paying interest or principal. Our template lets you visualize any outstanding loans you have. Based on the chart, decide if they are worth paying off at this particular moment. a pro tip... Access Aninvestor's free template here! Amortization template The path for effective debt management 1 MINIMUM PAYMENTS Find out what the minimum monthly payments are for each and every single one of your debts. Make them. Cut unnecessary expenses, if needed. This way, you can avoid penalties, which can lead to substantial consequences in the future. 2 To begin, list all your outstanding debts and determine their interest rates. Arrange them in order, starting with the debt that has the largest interest rate and ending with the one that has the smallest. The intention is to pay off the debt with the highest interest rate first, then move on to the next one, creating an "avalanche" effect. In many cases, you can allocate extra capital directly to the principal without paying additional interest. AVALANCHE 3 ALTERNATIVES You can opt for several alternative options, however we will only mention two: Negotiation Depe nding on the circumnstances, you may be eligible to renegotiate your loan terms, perhaps extending the time period or decreasing the interest. Verif y you are not hurting your credit score by doing so . Debt consolidatio n Depe nding on the circumnstances, you may be eligible to combine all your debts into one with a specific interest attatched to it. Verif y you are not hurting your credit score by doing so . Insurance Insurance is a financial tool designed to offer protection against substantial losses or damages. This includes various types, such as health, car, home, and business insurance, though virtually anything can be insured. By choosing to insure something, you enter into an agreement with an insurance provider, adhering to specific terms and conditions. Typically, this involves paying a regular fee, in exchange for the security offered by the insurance. Should a significant loss or damage occur that falls within the agreed terms, the insurance company is obligated to provide compensation, potentially covering the full value of the insured asset. Essentially, insurance companies consist of numerous policyholders like yourself. Collectively, the fees paid by these policyholders accumulate, creating a financial reserve used to address the insurance claims (significant losses or damages) made by clients. This approach effectively distributes the risk among all the insured individuals. Think of insurance as a strategy to safeguard your assets against unexpected events. How? This content is purely informative and should not be interpreted any other way. Please consult an expert prior to making decisions.

Learn about investment securities like equity, fixed income, real estate... and so much more. Unlock your tools! a guide for investors, a guide for you The Time Value of Money Value versus quantity There is an important distinction between value and quantity. Let's say you have a $1 USD bill. quantity PAST PRESENT FUTURE time value PAST PRESENT FUTURE The value , or the purchasing power of that $1 USD is subject to change time The quantity or units of dollars you have is and will forever be $1 USD Why does value decrase? Over time, monetary value fluctuates and typically decreases because of: inflation, economic policies, global factors, etc. what does this mean? As time progresses, the value of your money tends to diminish. To counteract this trend, it's essential to: 1) Spend your money in the moment (not recommended) 2) Invest your money Investments There are several types of investments one can make, many of which fall under the category of 'financial securities.' Investing involves allocating your money into these "securities" with the expectation of generating future income or profit. This process often means 'exchanging' your ability to spend that money immediately in hopes of receiving your original investment back, along with additional returns in the future. "Now that you have gained an understanding of personal finance, this section will introduce you to the basics of investment, along with key considerations that are important for your future financial endeavors! Risk It's important to note that virtually all investments carry some degree of risk. Generally, risk and potential returns are directly related: higher risk can lead to higher returns, but also to greater potential losses. Therefore, the more risk you are willing to accept, the greater the potential for both higher earnings and significant losses. Potential returns are measured in %. Risk free return The risk-free return is a theoretical concept describing a rate of return on an investment with zero perceived risk. Since risk is correlated with potential earnings, investments considered risk-free typically offer lower returns. Often, government bonds are seen as examples of such investments, given the government's authority to print money for repayment. However, it's important to note that excessive money printing can lead to devaluation of the currency. Your investment goal should ideally be to attain a rate of return that at least preserves the purchasing power of your money, taking into account factors like inflation and economic changes. goals managing expectations Investing is not a get-rich-quick scheme for most people. Its a process that takes time, strategy and discipline. The typical return rate in the US stock market is around 10% per year. Investments yielding below 7% may be considered overly conservative. Although returns at this level may not be maximized, they do keep risks relatively low. A favorable equilibrium in investment returns is usually found in the 8% to 16% yearly range. This spectrum offers a nice blend of reasonable returns along with a degree of security and consistency. Consistently achieving and maintaining returns over 17% is quite demanding and frequently entails a level of capital risk that exceeds the comfort zone of many investors. A useful metaphor An investment portfolio can be thought of as a car. If the car is moving fast, it will reach its destination quicker, but there's a higher risk of crashing. Conversely, if the car travels at a moderate speed, it may not arrive as quickly, but it does so with a lower risk of getting into accidents. As an investor, you can manage risks through two main strategies: 1) Choose investments that align with your risk tolerance. This means selecting securities that match the level of risk you are comfortable taking on. 2) Diversify your investments across different, ideally unrelated, categories. This approach reminds me of the saying, "Don't put all your eggs in one basket." Diversification helps spread risk and can mitigate the impact of poor performance in any single investment. A general rule Debt instruments, bonds, cash, CD's, bank accounts Stocks, real estate, high income bonds, mutual funds Options, futures, etc risk level Relatively low Relatively high *Note: High risk securities will not be covered in this website Types of Investors Depending on the level of risk you are willing to take, you will most likely fall into one of the following categories Credits to investopedia.com Your strategy to meet your objectives will depend on where you stand on this chart. The types of financial securities you invest in and your investment portfolio need to be adjusted to your category. While a more aggressive investor invests heavily in options or futures, a conservative investor has the majority of his portfolio invested in government bonds. The Power of Compounding Just as time can decrease the value of your money, it can become your ally. Compound interest is a powerful concept that refers to the process of earning interest on both the initial investment and the accumulated interest from previous periods. In simpler terms, it's "interest on interest," and it can cause wealth to grow exponentially over time. We encourage you to experiment with this compound interest calculator using reasonable values. Discover the potential of your invested money! Compound Interest Access the US Government's calculator Access it for free here! Credits to: https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator Input your expected interest rate, initial investment and time period. Fixed Income (bonds) Equity theory (stocks) Equity application (stocks) R eal Estate

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