Personal Finance: What You Need to Know in 7 Minutes

I've spent 23+ years studying Finance and became a multi-millionaire in my 30s.

I'll teach you everything you need to know about Personal Finance in the next 7 minutes:

— Clint Murphy (@IAmClintMurphy) June 24, 2023

There are three statements you need to understand:

• Budget
• cash Flow
• Net Worth

They tell you:

• What you are earning, spending, and investing
• What are your cash inflows and outflows
• What you are worth, on paper

— Clint Murphy (@IAmClintMurphy) June 24, 2023

• Budget

A budget doesn't tell you that you can't spend money,

It tells you how you should spend your money.

Categories you will focus on:

• Earnings
• Expenses
• Investments

A budget covers a specific time period, generally one year.

— Clint Murphy (@IAmClintMurphy) June 24, 2023

• Earnings

Earnings are your budget inflows from:

• Your job
• Side hustles
• Investment income

The goal is to increase your income.

— Clint Murphy (@IAmClintMurphy) June 24, 2023

• Expenses

Your expenses can be broken down into fixed and variable costs.

Fixed expenses remain consistent month to month - your rent, car payment, etc.

Variable expenses change with your behaviors: gas, eating out, food, and entertainment.

— Clint Murphy (@IAmClintMurphy) June 24, 2023

• Needs versus wants

Variable expenses should be broken down further into needs and wants.

Needs are non-negotiable:

• food
• clothes
• housing

Wants are what they sound like - it's spending money on what you want.

— Clint Murphy (@IAmClintMurphy) June 24, 2023

• Investments

The difference between what you earn and spend is your savings, but

with inflation, saving will not help you become a millionaire.

Instead, look to invest whatever remaining money you have.

— Clint Murphy (@IAmClintMurphy) June 24, 2023

• Cash flow

Your cash flow is similar to your budget but focuses on cash inflows and outflows throughout a period, monthly for example.

Your cashflow will be broken down into:

• inflows
• outflows

— Clint Murphy (@IAmClintMurphy) June 24, 2023

• Inflows

Cash inflows are cash inflows you will receive from:

• your job
• side hustles
• investments

The key is they have to be cash inflows, not simply earnings.

Many people have non-cash earnings, such as:

• stock options
• investment appreciation

— Clint Murphy (@IAmClintMurphy) June 24, 2023

• Outflows

Cash outflows are cash you pay for variable and fixed expenses.

They may also include investments.

When you invest, it generally requires a cash payment or outflow.

The key is an outflow has to be cash, like inflows.

— Clint Murphy (@IAmClintMurphy) June 24, 2023

• Net Worth

This statement will tell you when you're a millionaire.

Your net worth is the difference between your:

• assets
• liabilities

Our goal is to increase our net worth over time.

— Clint Murphy (@IAmClintMurphy) June 24, 2023

• Assets are what you own

Your assets include all items that can be converted to cash with time:

• cash
• investments
• personal home
• real estate holdings

— Clint Murphy (@IAmClintMurphy) June 24, 2023

• Liabilities are what you owe

Your liabilities include all items that will require you to pay cash to settle in time:

• car loans
• credit cards
• student debt
• home mortgage
• mortgages on real estate

— Clint Murphy (@IAmClintMurphy) June 24, 2023

• 3 Principles Rule

This is the foundation of it all:

1. Increase earnings
2. Decrease your spend
3. Invest everything left over

Ensure your investments include an emergency fund and you're prepared for the unexpected.

— Clint Murphy (@IAmClintMurphy) June 24, 2023

• The Pay Yourself First Rule

Too many people get paid, spend on their lifestyle, and then invest.

You need to invest at least 20% of your pay FIRST and then spend what's left.

Make your investment a priority.

Do it first, and live off the rest.

— Clint Murphy (@IAmClintMurphy) June 24, 2023

• The Automation Rule

You make 35,000 decisions a day.

This leads to decision fatigue and bad decisions.

Automate good decisions to prevent mistakes:

• get paid
• auto-transfer to savings
• auto-transfer to investments
• set up auto-bill pay for your bills

— Clint Murphy (@IAmClintMurphy) June 24, 2023

• The 50-30-20 Rule

The average American household saves 10%.

Some have proposed the following:

50% - needs
30% - wants
20% - investing

To be a millionaire, flip the script:

50% - investment
30% - needs
20% - wants

The closer you can get to this, the better.

— Clint Murphy (@IAmClintMurphy) June 24, 2023

• The Big 3 Rule

The big three expenses for you are:

• transportation
• housing
• food

A certain amount of each expense is a need, the bare necessity.

The remaining portion you can control, the want.

The first step in reducing spend is to know: need versus want.

— Clint Murphy (@IAmClintMurphy) June 24, 2023

• The 20-40-10 Rule

If you're buying a car, use the 20 - 40 - 10 Rule.

• 20% down payment
• loan term no more than 4 years
• Spend less than 10% of monthly income

This keeps your car expenses reasonable.

— Clint Murphy (@IAmClintMurphy) June 24, 2023

• $27.40 Rule

If you save $27.40 every day, you'll save $10,000 per year.

If you start investing $10,000 per year at 8% at 20, you'll have $2 million at 55.

I wish I'd started investing $10,000 per year sooner - don't make this mistake.

— Clint Murphy (@IAmClintMurphy) June 24, 2023

• Rule of 72

Compounding is the 8th wonder of the world and has the power to make or break you.

Rule of 72 indicates how long it'll take your money to double taking compounding into account.

If an investment earns 18% per year, it will double roughly every four years.

— Clint Murphy (@IAmClintMurphy) June 24, 2023

• Rule of 114

The Rule of 114 is comparable to the Rule of 72, but it tells you how long it will take for your money to triple.

I only learned this one in the last 6 months and am fascinated by it.

I'm looking forward to some triples.

— Clint Murphy (@IAmClintMurphy) June 24, 2023

• The Subtract 100 Rule

Subtract your age from 100 and put that percentage of assets into stocks.

If you're 20, you should have 80% stocks and 20% bonds.

Some argue, given longevity and retirement horizons that you should put more into stocks.

Consider your risk tolerance.

— Clint Murphy (@IAmClintMurphy) June 24, 2023

To be a millionaire in your 30s,

Understand your budget, net worth and cash flow,

And live these rules in your 20s:

Big 3 Rule
Rule of 72
Rule of 114
$27.40 Rule
20-40-10 Rule
50-30-20 Rule
3 Principles Rule
Automation Rule
Subtract 100 Rule
Pay Yourself First Rule

— Clint Murphy (@IAmClintMurphy) June 24, 2023

This has been a "cheat sheet" on everything Personal Finance.

If you've found value, please:

1. Follow @IAmClintMurphy
2. Retweet the 1st tweet:https://t.co/sJ9r14EHRZ

— Clint Murphy (@IAmClintMurphy) June 24, 2023