Why don’t we get personal finance taught at school?
In December 2016 the first idea to go to Cape Town came. This would be for an internship for my studies and for a period of 5 months. This is a once in a lifetime opportunity of course but it’s also an expensive thing. The rent, the groceries, the parties, the restaurants, it’s not cheap. Fortunately, I am a developer for five years now and because I am still living with my parents I had quite some savings.
Because of this luxury I never had to worry about money. Of course I was living mindfully with not spending too much, but it has always been a good life. So I thought “Maybe, if I really want to increase my monthly income it would be good to know how it is to almost have no savings. If I will live abroad for a half year most of it will be gone and I would have to figure out how to gain capital again”. So that’s what I did. I spent a half year abroad living as a king in a beautiful country. Also trying to figure out how I would going to get capital again when I would come back. You have to know that I started my own business in the summer of 2017 and I worked a lot on it during my time abroad. However, this didn’t give monthly income yet.
So spending a lot and earning nothing during my time abroad gave me some interesting insights. One of these insights is that we think that the majority of the people can manage their money. I think it’s the other way around. The minority of the people can handle money really well. Of course I have made mistakes in my past but so far handling money is one of my interests. I read a book in Cape Town called “How to become a millionaire at 22” from Albert van Wyk. As well with other sources, a couple of things are coming back every time. Don’t put your savings on the bank, this isn’t going to make money for you. The average inflation in The Netherlands in 2017 is 1,40%. The interest on my bank is 0,05%! This means that if I put €5000 in my savings account for the whole year in 2017 I would get an interest of €3😃 So if the price of products grow with an average of 1,40% and the value of my money is only growing with 0,05% this would mean I would lose 1,35% per year which comes down to €67,50. See the formula below to calculate this:
Net value of your savings: savings / 100 * (bank interest - inflation)
Example: 5000 / 100 * (0,05 - 1,4) = €-67,50
So the 22 of January 2018, I will be back in The Netherlands. From that point I will start gaining capital again and how am I going to do that? First of all I need to have financial insights. Thinking about this problems I came up with the following three questions:
- What are my average expenses per month?
- What is the percentage increase of our expenses and income in the last three years?
- How much monthly cash flow can we expect in 2018?
Unfortunately, the bank couldn’t provide me with those details. I could however, download a complete summary from all my transactions from the past 16 months. With the little python experience I had, I was able to calculate the average expense and income and the percentage increase from expenses and income. According to the calculations the result was the following:
Expenses percentage increase: 0,2%
Income percentage increase: 0,09%
That the percentage from expenses is higher than the percentage from income seems like a bad number but this depends on what your income and expenses are. If your average income is €10.000 and your average expenses are €1000 this would mean that you will have a annual increase of expenses of €2. Looking at the average income and expenses I was shocked by the numbers. At first I thought my calculations were wrong but when I checked my account statements with a couple of months the calculations were right. Unfortunately, I couldn’t see what the biggest expenses were. Of course you can see that your health insurance might be €100 a month but if you spend €10 every day for traveling this is a bigger expense than the health insurance.
Since I like talking about finance with people I was talking about regular financial management with various people. These were people just like me. Dutch students who are living abroad in Cape Town for a half year. Every one I spoke with says the same thing:
I also don’t have clue where my money goes every month!
There have been periods that I didn’t want to check my bank account because I spent too much. That’s what a lot of people do. They don’t check their bank account because they’re scared of the numbers. If you want financial control, always check your bank account! In school I had a class economics which was about the very very basics of economics. After 10 years I now realise that this probably contributes to your overall knowledge but I find it ridiculous that you don’t get personal finance taught. Like literally nothing. Normally I’m a fan of learning through trial and error but in my opinion finance is not really suitable for this. People should learn how to manage money. I think the educational system as well as the banks should help people with this. When I look at my transaction summary on my mobile I see so many transactions in one month that I can’t see the wood for the trees. I don’t notice when someone transfers money to me. It’s surrounded by payments I make for daily use. Banks should provide more insights in your personal finance and help you plan future insights. School should help you how to handle your personal finance. Give children some basic rules how to handle their finance so they can try it when they’re still financially independent. I once read a very easy book about finance which was called “The richest man from Babylon”. It was written in story form and it explained the 7 rules for getting financial stable. So here are a few rules I wrote down:
- Save at least 10% of your monthly income
- Write down all your fixed monthly expenses and income
- Invest your money in something. BUT, only invest when the return on investment is safe! When you can always get your money from it and when it has a reasonable interest. Let the people with a lot of knowledge invest for you
Really, this book might sound childish it’s a really easy book with good advice. I hope someone will find the tips useful.
Do you have tips about handling your financial well being? Please let me know!
Sjors van Dongen is a Dutch guy with a passion for development, entrepreneurship and personal growth. He’s currently working on his startup for digital visitor registration software Incheckert✅
