What School Doesn’t Teach You About Money 💰

Hey y’all,

I want to start this newsletter with a HUGE thank you to everyone who showed up to our NYC meetup. I had such a fun time meeting some of y’all!

It’s one thing to read kind comments, but it’s a totally different experience to hear in person the impact my videos have had. Thank you so much for your constant support.

Also, I’m blown away by how impressive y’all are. For example, I met a student who’s working on robotics research project and another student who’s learning four languages. Props to all of you.

I’ll definitely try to have more meetups throughout the year!

Intro

In today’s newsletter, I want to cover some personal finance concepts you probably never learned about in school.

My high school offered a personal finance class in which we went over some basic concepts, such as budgeting. However, we never touched upon taxes or investing, which tend to be the concepts you have to learn yourself once you reach adulthood.

On the one hand, I get it. Some may argue that these are concepts you should learn about from your parents, especially since different families may have drastically different views on money.

On the other hand, I do feel our education system could do a little bit more to equip students with basic financial knowledge.

While there’s a lot to cover, I want to briefly briefly touch upon budgeting, saving, and investing.

How to Budget

Regardless of how much money you have, you should learn how to budget.

As some of y’all may know, I spent way too much money on food my freshman year of college. And this is a trap I see many students fall into.

Without a budget, they often lose sight of not only how much they’re spending, but where their money is going.

That’s why I recommend you follow the 50/30/20 rule. This budgeting rule suggests that you put 50% of your money towards needs, 30% towards wants, and 20% towards savings/investments.

Needs include expenses such rent, utility bills, and college tuition.

Wants include expenses that aren’t necessary, such as a new video game or a new pair of sneakers.

And savings include cash that you store on hand or in a savings account.

However, if you’re a student, chances are you don’t have too many needs (unless you’re one of my older readers currently living alone and/or covering their own college costs).

As such, I recommend that you allocate more of your money towards savings. So instead of following the 50/30/20 rule, perhaps you follow the 30/30/40 rule.

Now all that sounds might sound great. But how should you actually save or invest that 40%?

How to Save Money

You have three main ways of saving money: you can keep some cash on hand, you can put some money into a savings account, or you can put some money into a high-yield savings account.

You should always have some cash on hand just in case. The exact amount will vary depending on your age and circumstances.

You should also put some money into a savings account, which will allow you to earn interest from the bank. However, that interest is usually pennies.

For example, let’s say you move $1,000 into a savings that offers an APY of 0.01%. After a year, you’ll earn $0.10 in interest.

That’s why I also recommend students open a high-yield savings account (HYSA). These tend to offer much higher interest rates, often in the range of 4-5%.

But if you’re young, I don’t just recommend that you save money. I also recommend that you invest some of that money.

How to Invest Money

First things first: don’t day trade. In other words, don’t try to guess which stocks will go up or down. Even the best investors on this planet don’t guess right and often lose money.

If you’re young, I recommend that you look into index funds. In very simple terms, these funds will take your money and distribute it among hundreds of stocks, which diversifies your investment and lowers your risk.

In slightly more complex terms:

The S&P 500 is a market index tracking the stock performance of 500 of the largest companies in the United States. So if you invest into an index fund that tracks the S&P 500, you’re essentially investing in 500 of the biggest companies in the stock market.

This is much safer than trying to decide yourself which individual stocks to invest in.

Generally speaking, index funds that track broad market indices like the S&P 500 have historically returned 7-10% annually over long periods (e.g., 20+ years), when accounting for inflation.

The Importance of Starting Young

The younger you start investing, the more you’ll benefit from the phenomenon of compound interest. The basic idea behind compound interest is that you earn interest both on the money you invest and the interest you’ve earned.

Here’s a simple example to illustrate this concept:

Imagine you invest $1,000 in an index fund that tracks the overall stock market and yields an annual return of 7%.

In the first year, your investment grows by $70 (7% of $1,000), giving you a new balance of $1,070. In year two, you earn 7% on the larger balance of $1,070, which is $74.90. Your new balance becomes $1,144.90.

This is where the magic of compound interest begins to show. Notice that you earned more in the second year ($74.90) than in the first ($70), even though the percentage didn't change. This is because you're now earning returns on your initial investment plus the previous year's gains.

Conclusion

Budgeting, saving, and investing just scratches the surface of personal finance.

In a couple weeks, I’ll be publishing a long-form video covering many more money tips and concepts that students should learn about.

DM me on Instagram if there’s anything in particular you’d like me to cover!

What did you think about this newsletter? DM me on Instagram (@goharsguide) to let me know!

If you want study help, come join my Discord! We have a global community of students helping each other succeed in school. I’d love to see you there.

And if you need help with college applications, check out Next Admit! We have a team of Ivy League consultants eager to help you navigate the admissions process.

I’ll see you next week!

Best,
Gohar