Essential Personal Finance Topics

Personal finance is the management of your own money with the goal of maximizing your net worth (your assets minus the money you owe others). Below are some of the basics to further explore.

Your credit score is a number that shows lenders how likely you are to pay money back when they loan it to you. Landlords and utility companies may also look at your credit score. The most important thing you can to do get a high credit score is to pay off all of your debts on time. Start young (in your teens) and get a credit card, make small purchases, and pay them off on time every month.

Saving and investing is also critical. If you start saving at a young age and investing it, the power of exponential growth can make you wealthy over many years. The stock market has averaged about 10% per year since its beginning. This can make you a millionaire by the time you retire. Those who put their money in savings accounts are likely to lose to inflation (which is about 3% per year).

Not all stocks are created equal. Trading stocks and shares for beginners can be overwhelming at first, but it doesn't have to be. Before you invest, research value stocks and small value stocks. Plenty of academic studies show that these types of stocks beat market averages. Research also shows low costs beat high costs. Invest in a low cost brokerage firm, choose index funds with tiny expense ratios (such as Vanguard funds). Gradually move away from stock as you approach retirement since they are risky, and you don't want your money to drop when you go to withdraw it as you retire.

Real estate is another method of investing that can make you a millionaire. If you track average home value appreciation, the numbers have beaten inflation over time. A common mistake is keeping it simple and investing in a single family house or one bedroom apartment. The trouble is, these types of properties struggle with negative cash flows typically. Look into triplexes or quadplexes; these types of properties have multiple apartments under one roof and make it easier for the house to bring in positive cash flows over the years.

Track your money. You can't improve what you don't monitor. Download Check, the best personal finance app on the market (and it's free). Check will show you how much money you have, how much money you owe, when bills are due, your credit score, and allow you to pay bills online within the app.

Squiggle is the author of Finance Squiggle, a personal finance website dedicated to maximizing your net worth by bringing you advice based on essential scholarly research.