The Taboo of Money: An Easy Guide to Financial Literacy and Investing

Financial literacy. This is something that I never, ever thought that I would be talking about on the podcast. Money has always been a taboo topic for me. I guess I never really talked about money with anyone. Having money is such a taboo thing. It’s, like, weird because we all need money in order to survive, but we just don’t talk about it. 

*Disclaimer- this is all a reflection of the book “Girls That Invest” and is not professional financial advice in any way.

Money. It’s an uncomfortable topic. We live in a society where discussing personal finances is considered impolite or even shameful. But why is this the case? Why don’t we have the education to learn even the most minimal amount of financial literacy? Honestly, it stumped me. So I decided to figure it out.

Budgeting

The first step to financial literacy is budgeting. If you’re anything like me, the word budgeting is terrifying. That means you have to face the sad truth that your morning coffee isn’t really a necessity, right?

Buy the coffee.

Value-Based Spending

When I was going through my budgeting and planning ahead for the year, I learned something so important- value-based spending. It’s an approach to spending that focuses on your priorities and values.

Now, reading an article on value-based spending isn’t always the easiest to understand. So instead of trying to explain it in fancy words, I’m going to explain how I personally budget following the ideas of a value-based spending model.

So what do I do? My money priorities are 4 main categories: savings, investments (more on this later), necessities, and personal. Of these categories, the two that I absolutely need are necessities and savings. So I looked at my monthly income and spending habits and set aside a healthy amount for those two categories. That money is now put away and off limits for anything else. Great.

Next is investments. I don’t need it, but it is high on my priorities. So I did the same thing, I set aside a healthy amount for investments that I don’t touch for anything else throughout the month. Now everything that I need is put aside and safe. What do I do with anything left over? That’s for me to spend on whatever I want. I split that extra amount into four so that I know how much per week I’m allowing myself to spend on personal expenses. Want a coffee before class? No problem, because I know how much I am allowed to spend that week without needing to feel guilty.

You see, value-based spending isn’t going to suddenly give you more money so that you can buy all the coffee in the world, but it does take away the guilt you feel when buying something that you don’t necessarily need. Knowing your budget gives you the freedom to feel confident in where you are spending your money. Let me tell you, it was a life changer.

Investing- Where Do You Start?

Okay, now that we have a budget, what am I doing with the money I’m investing? How do you even start investing? Isn’t investing just like gambling? Is it even worth it? I’m just going to lose money, aren’t I?

The stock market is a scary topic, but let me break it down in the way I learned it- a lemonade stand.

The Stock Market: A Lemonade Stand Analogy

So, I’m going to try and say it in the simplest, quickest way that we can to describe it. What is the stock market? The way I learned it was in the book “Girls that Invest.” They said to imagine that you have a lemonade stand. Your lemonade stand starts doing well and people from neighborhoods next to you start coming. All of a sudden you realize you need another lemonade stand but you don’t have the money.

You’re gonna need more lemonade, someone to work the new stand, signs, and so much more. And that all costs money. So now you have two options: take out a loan (and pay interest…yuck) or take the company public. Let’s say you take the company public. This means that you split it into shares that can be bought by investors for a certain price (i.e. $1 per share and you have 1000 shares). So you do this and once people buy your shares, you’ve got $1000 to start a new stand. Great. You got your money.

But let’s say someone thinks your company is doing so well that they buy a share from someone for $5 instead of the original price of $1. The person with the $1 share just made $3.

Then someone else comes along and says it’s not worth $5, it’s only worth $2. The person with the $5 share might get nervous and be afraid that they’re putting their money into something that’s not worth it. So they give it away for the $2. This is the stock market. The stock market is the buying and selling of shares of a company. The company already has the money it asked for, but the people are ‘voting’ on the company’s worth by determining the value of the shares.

Long-Term Investing: Weathering the Storms

So now we tackle the question of risk. The Great Depression. We’ve all heard the stories of people losing their money. But why? How?

Panic is how so many people lost money in the Great Depression or any other downturn of the stock market. The market went down in the Great Depression, right? But what we often forget is that it came back up again. The people who lost money are the ones who took their money out while the stock market was down instead of waiting it out. Historical data shows that the stock market tends to recover and grow over time, so adopting a long-term perspective can help you minimize the risk involved.

Next Steps

Research. It’s not the answer you want to hear, I know, but it is so important to building financial literacy. I highly suggest reading “Girls that Invest” because it explained almost everything I know about the stock market to me and it can for you too. Investing is a topic that can be terrifying, but it doesn’t need to be. I suggest researching index funds such as S&P 500 that offer diversification and minimize risk as a starting point!

Key Takeaways to remember when researching:

1. Money is often a taboo topic, but it is essential to learn about financial literacy to effectively manage our finances.
2. Budgeting should focus on value-based spending, prioritizing necessities, savings, and investments.
3. The stock market is a platform for buying and selling shares of companies, and long-term investing in index funds can help mitigate risk.
4. Investing requires patience and a long-term perspective, as the stock market fluctuates but tends to increase over time.

Check out Girls that Invest. I promise this is not sponsored, I just love the book that much.

Until next time,

Alessia Maria

Still want to learn more? Check out the full episode