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Our editors independently research, test, and recommend the best products; you can learn more about our review process here. We may receive commissions on purchases made from our chosen links.

According to T. Rowe Price's 2019 Parents, Kids & Money Survey﻿﻿﻿, 75% of kids said they wished their parents taught them more about money, and 72% said that their parents are "always worried about money." Generational financial illiteracy is a frequently discussed issue in the United States, but most schools do not teach it, even at the high school level. That leaves many young people feeling lost when it comes to basic money management.

Research from the National Bureau of Economic Research﻿﻿﻿ has repeatedly shown that people who learn about financial literacy as teenagers are more likely to save money for retirement and that those with a low level of financial literacy﻿﻿﻿ are less likely to plan for retirement and more likely to take on excess debt. That education can begin with something as simple as reading a book, and it could have a huge impact on the financial trajectory a person follows throughout the course of their life.

With all that in mind, here are the best finance books for teens of various ages and reading levels. Some books are even suitable for pre-teens, and all of them strike a great balance between educating and empowering the reader.

Final Verdict

Why Trust Investopedia?

These books were chosen based on a variety of factors, including the author's subject matter expertise. Mona Bushnell has been a writer and journalist for 7 years. She was inspired to start her full-time freelance writing career after reading "The Millionaire Next Door" by Thomas J. Stanley. Armed with her selections, we gathered recommendations from the Investopedia Financial Review Board, scoured bestseller lists and award winners for titles written by true financial experts, and ensured these picks have stellar online reviews. She also considered the usefulness of the advice in the books as well as the entertainment value and writing style.

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The 7 Best Finance Books for Teens in 2021

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Our editors independently research, test, and recommend the best products; you can learn more about our review process here. We may receive commissions on purchases made from our chosen links. According to T. Rowe Price's 2019 Parents, Kids & Money Survey﻿﻿﻿, 75% of kids said they wished their parents taught them more about money, and 72% said that their parents are "always worried about money."

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Funding for EU and international undergraduate students in the UK can generally be split into two categories: those offered by UK universities and those offered by third parties - usually governments, or commercial and charitable organisations, in a student's home country.

Sometimes, funding will be awarded as part of a partnership between a university in the UK, and a local representative in another country.

Scholarships are the most common form of funding available for EU and international students, with students usually applying on the basis of academic ability or potential, or talent in another area, like sports or music.

These may cover tuition fees in full, reduce them, or contribute to the cost of living and studying away from home, in the UK.

Bursaries and grants based on students' personal circumstances - like coming from a low income household, or experiencing some other form of disadvantage - are less common. They're usually one-off payments, sometimes to help with travel costs, or costs to settle in.

Some EU students may be eligible for some of the same scholarships, bursaries, and grants available to UK students - like those awarded for academic achievement, or to disabled students. However, following changes due to Brexit, fewer EU students starting courses in 2021 will meet these eligibility criteria. Check the UKCISA website for more information on these changes.

University scholarships and bursaries

Universities offer scholarships and bursaries to attract students from overseas, and to help them with the substantial cost of moving far from home to study.

There are many types of scholarship available to international and EU students:

Academic, merit, and excellence scholarships are awarded to students with a strong academic background, including achieving strong grades in their school exams.

This doesn't have to mean getting the highest grades possible. For instance, international students at one university automatically receive an international merit scholarship worth between £1,000 and £2,000, if they get CCC or above (or equivalent).

Other merit or excellence scholarships may be more competitive, requiring you to talk about your extracurricular achievements, interest in your subject, future ambitions, plus any personal circumstances you've overcome, in an application.

You may be invited to an interview too.

It's worth the effort though. For example, one university's merit scholarship slashes international students' tuition fees by half.

Subject-specific scholarships are similar to academic scholarships, but for students studying a specific course or subject.

They're usually administered by the relevant school or department at a university, and may be donated by an external organisation, or in memory of a former professor.

The eligibility criteria and application process typically focuses on your interest, skills, and experience in that subject, like any relevant work placements you've done. In some ways, it could be similar to your personal statement.

As part of the application process, there could be a subject-specific task or project to complete, such as giving a presentation on a topic, or providing a portfolio of work.

Any extra benefits that come with the financial award may be tailored to your subject or course, such as contributions towards field trips or special equipment.

Plus, receiving a subject-specific scholarship is something you can show off in future applications for internships or graduate jobs - especially those in competitive fields.

Performance-based scholarships are awarded to those who have exceptional ability in an extracurricular activity, such as sports, music, or performing arts like dance or drama.

You don't have to study a related degree, either. However, you may be expected to take on certain roles or responsibilities, such as playing on a university team, or performing at events on campus.

There's usually an audition stage to apply, or you may have to provide other evidence of your abilities, like a video of you performing, or a statement from an appropriate individual.

While these scholarships might reduce tuition fees or contribute towards general living costs, they're often created with the purpose of helping students develop their skill or talent. For example, one university's music scholarship rewards international students with regular lessons, and a £300 bursary for related costs only, like sheet music.

Equal access or sanctuary scholarships, for refugees and asylum seekers who've fled persecution in their home country are available. This can take the form of a tuition fee reduction or waiver, or a maintenance award.

Eligibility typically depends on your immigration status. You won't qualify if you can access other funding, i.e. you're sponsored by a company or your government, or you're eligible for student finance.

Disability scholarships are to support international students with a disability, long term mental health condition, learning difficulty, or other special need. These may contribute towards extra costs that you incur as a result of your condition. Note, if you're an EU student and you've lived in the UK for five years prior to the start of your course, you may be eligible for the Disabled Students' Allowance (DSA). This covers the cost of any special equipment and resources that you need at university. This is assessed based on your individual needs, and doesn't need to be repaid.

Bursaries (one-off payments) may be awarded under these circumstances too.

International students may receive a bursary or fee reduction from a university, based on a prior relationship or existing link with them:

a family member, i.e. a sibling, parent, child, or spouse, is a current student or alumnus

they studied a prior qualification at that university, and are continuing their studies there, e.g. moving from foundation degree to undergraduate degree

they participated in an international summer school, exchange, or similar programme at that university, and are continuing their studies

Tuition fee discounts may be available to international students who pay their fees in full, at the start of their course

Eligibility

In addition to any specific criteria that relates to the purpose of a particular scholarship for example, achieving certain grades for an academic merit scholarship - international students normally have to satisfy the following when it comes to scholarship from a university:

you're either an EU or international student - possibly from a specific country or continent, and you pay overseas fees

you live in an EU or international country - this may be a specific country

you're funding your studies yourself, as opposed to being sponsored by your government, your employer, etc.

you've accepted an offer for full-time undergraduate course at that university - you may have to accept this as your firm choice too

you meet the grade requirements and conditions that come with your offer

Applying

The application process for a scholarship will depend on the type of award, and may vary from one university to another. However, most will involve some kind of application form, that can be completed and submitted online. These can take time, so don't wait until the last minute to apply.

You may need to submit additional (translated) documents or evidence, such as a copy of your passport or other documents confirming your immigration status, academic transcripts, supporting statements or references, and portfolios (including video files).

Bursaries tend to be more straightforward, and may be awarded automatically.

Non-university scholarships and bursaries

As well as universities, international scholarships to study an undergraduate degree in the UK are typically provided by governments, commercial and charitable organisations, and special interest groups involved in international education - these may be in your home country, or in the UK.

A university may have a list of these scholarships for international students, on their website.

Because there are many different providers of scholarships, the eligibility criteria and application process for these can vary wildly.

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Scholarships, grants, and bursaries: EU and international students

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Funding for EU and international undergraduate students in the UK can generally be split into two categories: those offered by UK universities and those offered by third parties - usually governments, or commercial and charitable organisations, in a student's home country.

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Accommodation, food, books, nights out... You might be surprised how quickly it all adds up once you get to university - especially when you're settling into student life, and managing your money for the first time.

Did you know that - accommodation aside - the average student spends £247 per week? This skyrockets to £427 in freshers' week alone (UCAS 'Spend Student Lifestyle 2020' Report).

Managing this cost isn't easy. Almost a fifth of students (18%) told us that financial concerns had impacted their mental health or wellbeing, while 6% of university dropouts were finance-related (UCAS 'Freshers Experience 2019' Survey - January 2020).

Regardless of what student finance or extra funding you receive, you need to make it last. Luckily there are lots of tips, tricks, hacks, and helping hands for students living on a budget.

Did you know that three quarters of students who applied to a scholarship or bursary, were successful? (UCAS 'Freshers Experience 2019' Survey - January 2020). If you haven't done so yet, explore these extra sources of funding.

Create a budget

Creating a simple student budget based on your income and outgoings is a solid place to start. This should cover your regular, ongoing expenses (such as rent, utilities, phone bill, and gym membership), plus any one-off or special costs.

Start pulling together a barebones budget as soon as you begin thinking about university. This will reveal which money holes you need to fill, giving you time to do so, or factor this into your university decision. Our guide on what to do if your student loan isn't enough has some suggestions.

Our student budget calculator and regional finance guides can give a rough idea of what your key income and outgoings might look like:.

As you gradually narrow down your UCAS choices, and learn how much you'll need to live on, you can update your budget to reflect this.

At the same time, you'll get a clearer idea of your income (once you receive your student finance confirmation, applied for extra funding, saved up money from part-time/summer jobs etc).

While there are lots of budgeting apps out there, an Excel spreadsheet could also do the job. Banks have their own apps to track spending too.

Sticking to your budget

Once you've created a budget, it's just a case of sticking to it.

It's easier said than done when you're in new surroundings, and looking after yourself for the first time - especially when that juicy student loan lands in your account.

Move money around: If your student loan, salary, or savings are sitting in your account, it's just waiting to be spent. Move these into a separate account - ideally one you don't have easy access to - and set up a direct debit that transfers your weekly budget into the account you use on a daily basis.

Give yourself a buffer: Don't budget to the very last penny. If an unexpected expense pops up - like repairing a laptop, or an impromptu trip home - this will throw a spanner into your budget. An interest-free overdraft can help with emergencies like this.

Pay for essentials upfront: Your budget should prioritise things like rent, food, travel, and books - these are the items you must have to live and study. Buy these first or arrange for payments to go out of your account at the start of term/the month, so you can't accidentally spend that money.

Stick to a shopping list: Plan your meals for a week, and build your shopping list around this. While items like milk, bread, fruit, and vegetables go off quickly, student staples like pasta, rice, tea, and canned goods have longer expiry dates (and can be bought in bulk if there's a deal going).

It's also cheaper to cook big meals from scratch and freeze leftovers - just make sure you defrost/reheat them thoroughly when it's time to eat.

Finally, don't shop on an empty stomach - you'll be less tempted to stray from your list.

Resisting treats and sales: Whether it's a cheeky takeaway, a new pair of shoes, or gig tickets, it's all too easy to part with your cash online thanks to apps, targeted ads, social media, and quick checkouts.

Hopefully our advice around tracking your spending will curb these impulses. You can also mute retailers or brands on social media apps, unsubscribe from email lists, and delete your card details from your browser. If something catches your eye, sleep on it, and see if you still want it the following day.

Finally, avoid Black Friday sales unless you're after a specific item (and you have the money for it). Keep an ongoing list of items you really need, and track their price over time to see if they're cheaper at other times of the year.

Track your spending: Almost nine in ten students said they used their bank's mobile app to manage their finances, while nearly a fifth used an online only bank app to do the same (UCAS 'Freshers Experience 2019' Survey - January 2020). Set up alerts for weekly balance updates, every time you use your card, or when your balance falls below a certain amount.

This way, you can see exactly where your money is going, and if you're on track until your next student loan or payday. If you're not, you can amend your budget.

Make the most of your student bank account

One perk of being a student is definitely a student bank account. As well as tracking your spending using your bank's mobile app, and moving money between accounts, there are a couple more ways your student bank account can help you manage your money.

Student accounts will boast fancy extras to catch your eye, such as travelcards, free/discounted cinema tickets, and supermarket gift cards. Don't be swayed by these alone though. Think about which ones you'll actually use.

A travelcard could save you a small fortune travelling to lectures, going home for weekends, or visiting friends across the country. Meanwhile, a discount for a supermarket or cinema will go to waste if there isn't a branch in your university city.

Check for student discounts

Discounts for students are available online and in person, at retail shops, cafes, restaurants, cinemas, theatres, museums, exhibitions, gigs, and more. You can usually get 10 - 20% off the full price, and over time, you can save quite a bit of cash, especially when it comes to birthdays, special occasions, or even just the occasional treat.

While you'll usually be prompted at the checkout, look for a discount or student price, or ask if you're not sure.

Always keep your (valid) student ID on you, if asked for proof.

There are various sites and apps which let you search discounts and deals depending on what you're after, plus we have our own student discounts pages for you to access right now.

Speak to campus services

If you're struggling with money, get in touch with your university or college's finance department, and see how they might be able to help. You might have to book an appointment, or there may be regular drop-in sessions.

They can give you trusted, confidential advice around hardship funds, emergency loans, and extra funding, as well as advise you on other financial matters, such as scams.

They can also put you in touch with other appropriate individuals or departments, including legal, wellbeing and jobs services, should you need them.

Whatever your situation, they've probably come across it before, having dealt with so many students in the past. So don't be afraid to reach out.

Need help budgeting? Start with our student budget calculator and personalise the results based on your own spending.

Also, check out our full guides to the cost of university and what to do if your student finance isn't enough.

Sponsored by University of East Anglia

Sponsored by University of East Anglia

UCAS article

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Accommodation, food, books, nights out... You might be surprised how quickly it all adds up once you get to university - especially when you're settling into student life, and managing your money for the first time. Did you know that - accommodation aside - the average student spends £247 per week?

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Money Management | Saving and Budgeting | MoneySense

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Money advice, budgeting tips and money-saving tricks for young adults. Making sense of payslips, students loans, PAYE and more!

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The Simple Path to Wealth | JL Collins | Talks at Google

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Have you ever read those articles where some extremely well-off family details their budget and then bemoans that they're barely getting by?

It's ridiculous that anyone could complain about raking in $350,000 a year, and it's clear many of these folks are wildly out of touch with how privileged they are. But while these families may be extreme (and annoying), they aren't alone. It's not just the wealthy who fall into the trap of earning more only to spend more and feel just as dissatisfied.

How do you get off this treadmill?

The answer is not to compare yourself with others ( Jeff Bezos will always be there to make you feel bad), or to blindly try to keep making more (there will always be some shiny, new thing to covet). The answer is to take a hard look at your own financial realities and aspirations and come up with a goal number. How much money is enough for you?

That number will be different for everyone, depending on your circumstances and values, but science is trying to help you decide. Researchers are currently embroiled in intense debate about whether there is a cut off point above which additional income stops having an impact on happiness.

One very prestigious study showed that above about $75,000 dollars a year, give or take a bit depending on cost of living, more money doesn't mean more life satisfaction. Other, newer research found no such cut-off point.

But while the details are still being studied, just about everyone in the field agrees that if you're actually poor, making more will likely make you significantly happier. There is also consensus that each additional dollar adds a little less to your life and there exists a level of wealth way before Bill Gates status that trading more effort and time for more money ceases to make sense ( even Bill Gates says so).

One way to calculate that point is to figure out how much money you'd need to make decisions based entirely on enjoyment and impact, without pressure to earn. This is the goal of the catchily named FIRE movement (for financial independence, retire early). Its boosters generally say that 25X your expected annual expenses is enough. So if $50,000 a year is enough for you to live comfortably, you need to save $1.25 million.

There are other more elaborate calculators that can give you a sense of what financial independence means for you. But perhaps the best way to get a feeling for your goal number isn't math but a simple thought experiment from writer Brad Stollery:

Suppose you're one of five people who have been selected by a mysterious philanthropist to participate in a contest. The five of you all have comparable debt-levels and costs-of-living, as well as similar, middle-class financial situations. You're all roughly the same age, equally healthy, have the same number of children, and you all live moderately low-risk lifestyles. Privately, and one by one, a representative of the donor approaches each of you with a blank check and a pen, and poses the following question: How much money would you have to be paid, right here and now, to retire today and never receive another dollar of income (from any source) for the rest of your life? The catch this time is that whoever among the five players writes the lowest amount on the check will be paid that sum. The other four players will get nothing.

This thought experiment forces you to cut away the natural impulse to aim ever upward (if you do that you'll bid too high and get nothing). That result is however much you ask for is your number, the amount you'd need to live comfortably and pursue your goals if status and lifestyle inflation weren't a factor.

Your answer might be a little bit higher or lower than mine or your neighbor's. That's fine. It's not important everyone agree on a number. The important thing is that we each reflect enough to have one.

Because the alternative is being one of those people confessing how you burn through a healthy six-figure salary and still feel stressed and dissatisfied. Your expenses and desires can be infinite. If you don't want to chase them miserably forever, you need to put a cap on your financial ambitions yourself.

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How Much Money Is 'Enough'? This Simple Thought Experiment Gives You an Exact Number to Aim For

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Have you ever read those articles where some extremely well-off family details their budget and then bemoans that they're barely getting by? It's ridiculous that anyone could complain about raking in $350,000 a year, and it's clear many of these folks are wildly out of touch with how privileged they are.

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The Budgeting Game | Money Games for Kids | MoneySense

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Learning about budgeting is fun with this interactive money game for kids aged 8-12. Can you manage your money for bills, food, travel for three months?

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Summary of the millionaire teacher

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Who is Andrew Hallam and why listen to him?

Andrew Hallam didn't grow up filthy rich. He was one of four kids and his parents had very regular jobs as a mechanic and store clerk. So from a young age, Andrew understood that he was responsible for his own finances.

As a young adult, Andrew became a private school teacher in British Columbia. This job didn't give him a good ole' cushy public sector pension, so he knew he had to get this "retirement" thing figured out for himself!
He read over 400 personal finance books before age 35. And the things he learned allowed him to become a millionaire and semi-retired while relatively young.
He is now very surprised that personal finance is not taught in schools. Our financial knowledge has such a giant impact on our lives. (Unlike many other things we are taught like equilateral triangles! I mean, when you gonna use that??)

Today his book The Millionaire Teacher is one of the top-recommended personal finance books. (People in the Personal Finance Canada subreddit seem to love it.) Andrew's book is so popular because he simplifies the most important investing ideas for us, while also diving into enough details to be practical.

So let's explore some of the top lessons I learned from Andrew's book, beginning with the first lesson...

1. Don't spend money on anything you don't need to build wealth faster

When Andrew first started his teaching job, he was single-minded about getting rid of his debt:

He lived with roommates even though he didn't like it.

He basically survived on potatoes, pasta and clams. (He picked up the clams from the local beach by hand!)

And for a while he even rode an old mountain bike 70 miles every day to commute to work-to save on gas!

Those sacrifices paid off. He was able to save 70% of his fairly average salary and payed off his student loans in a year. After that, he began directing all his savings to his investments. 6 years later bought some oceanfront property which he aggressively paid off in a short time. Meanwhile his coworkers who felt sad for him a few years ago were still stuck in deep debt.

Does this mean we should all live like monks or act like Scrooge, hoarding our money until we're sick in a nursing home? Not at all. Andrew believes if you've already got enough, then it's perfectly fine to buy a luxury item for enjoyment.

Differentiate between wants and needs

However, if you're starting out and trying to build wealth, then it makes total sense to avoid any unnecessary consumption. We should differentiate between what we want and what we need. We should also ask ourselves the question: how often has buying something new actually led to more enjoyment or fulfillment? I want to share a quote from a different personal finance writer named Joe Dominguez, who said:

"We have learned to seek external solutions to signals from the mind, heart or soul that something is out of balance. We try to satisfy essentially psychological and spiritual needs with consumption at a physical level."
- Joe Dominguez, Your Money or Your Life
(By the way, if you have trouble avoiding overconsumption in our consumerist culture, then you're not alone. If you want to adopt a healthier perspective on money that can also help you save a lot more, go see our summary of Your Money or Your Life by Joe Dominguez.)
In the pursuit of appearing wealthy, many people go broke. In the end, they accumulate not wealth, but stress. For example, most people nowadays buy cars on loans, even several year long loans. They choose a car based on the largest payments they can afford, not considering the total cost of the car in the end. Other people buy the most expensive home their bank will let them sign a mortgage for. This is a dangerous situation because sudden problems like temporary unemployment or a rise in interest rates can quickly make them homeless.

If you're considering purchasing a home, double the interest rate and figure out if you could still afford the payments. If you can, then you can afford the home.

Many of us believe that a higher income would get rid of our money problems. Yet NBA basketball players make enormous salaries, but 60% of them are broke within 5 years of retiring. Lottery winners have similarly depressing statistics. And people in general tend to simply spend more as their income increases, a phenomenon known as "lifestyle inflation." So what's the answer?

Well, to really get rich, we must live like rich people do.

Most millionaires do not buy flashy stuff. Researcher Thomas Stanley says the average millionaire's car costs just $31,367.10. And unlike what most of us assume, the average millionaire is not driving around a Ferrari or Lamborghini. In fact, most millionaires drive a Toyota. Thomas Stanley wrote a whole book busting many of these pop culture myths of "millionaires" in his book The Millionaire Next Door. After extensive surveys, he found most millionaires are regular hard working people, often blue collar. They saved money over a lifetime to secure a good retirement for themselves.

Andrew first found out about these frugal mindsets of wealthy people when he worked for a mechanic named Russ who was a millionaire single dad. From this mechanic, Andrew a lot of money-saving advice. For example, he learned never to buy cars new or lease them because you lose a lot of money that way. Most people who buy a new car lose thousands of dollars in just the first year because new cars quickly drop in value. Instead, the mechanic told Andrew to look for used cars which have around 60,000 miles (100,000 km) and that are in good shape. Following this mechanic's advice, Andrew found he could buy a car, drive it around for a year, then even sell it for a profit.

On one occasion, I bought a low-mileage, 12-year-old Toyota van for $3,000. I drove it 4,000 miles from British Columbia, Canada, down the Mexican Baja peninsula, then on to Guadalajara, before driving back to Canada. After covering more than 8,000 miles in a single trip, I sold it for $3,500.

I guess the point here is that rich people often live frugally. That's how they became rich! Sam Walton who founded Walmart continued to drive the same old pickup truck for decades. When journalists asked him why, he said incredulously: What was he supposed to do? Drive his hunting dogs around in a limousine? By the way, if you want to learn more about how he became ultra-successful while still sticking to his values like frugality, go read our summary of Sam Walton's book Made in America.

To get started saving, first pay off all your credit cards and high interest loans. It makes no sense to invest your money which may earn you 10% interest if you still have debts that are costing you 20% interest!

After that, writing down your expenses is a great idea. This will shine light onto where exactly you are spending money. As business guru Peter Drucker said, "What gets measured, gets managed."

Andrew lived extremely frugally to pay off his student loans in a year and begin investing. In fact, most millionaires live simply, that's how they became rich! Surveys show the average millionaire drives a Toyota, not a Ferrari. The first step to building wealth is paying off your credit cards and high-interest loans. Then write down all your expenses to track where your money is going.

2. Use the power of compound interest to retire with $1-2 million or more

What is being wealthy anyway?
Most people would probably agree you're wealthy if you don't have to work ever again. I mean, if you have wealth on paper, but you're still forced to go to a desk job you don't like at 8am every day, that doesn't sound very wealthy to me.
So how much money do we need to save to never work again?
Well, there's a good rule of thumb called This means you can withdraw 4% of your savings every year and you won't run out of money, because at the same time you'll be making 4% or more in interest. That's a safe assumption to make. However, if you took out more than 4% every year, then eventually you'll run out of money. Here's what all this means in practice. If you want an income of $100,000 every year in retirement, then you need to save $2.5 million. (Because 4% of $2.5M is $100,000.) Or, if you want $40,000 every year in retirement, then you need to save at least $1 million.
Now, how on earth is a regular person supposed to save that much money?
It is entirely possible for a person with an average income to save a million or two over their lifetime, when they take advantage of the power of compound interest.

A quick 30-second explanation of compound interest:

When you invest money, each year your money grows a little. This growth is called interest. So if you invest $500 and earn 10% interest, then you would have $550 at the end of the year. Simple enough, right?

Now here's where it gets very interesting. In your second year, that $550 would earn another 10% interest and become $605. This time, not only is your initial $500 growing again, but the $50 interest your earned last year is now also earning money too. Compound interest is the name for this phenomenon. It is what happens when your interest itself earns more interest. While the difference may not sound big in this example, over many years and decades this effect becomes exponential.
Compound interest is the reason why investing a few hundred dollars per month reliably turns people into millionaires by the time they are ready to retire. But the earlier you start investing, the more you can take advantage of this compounding effect, and the wealthier you'll become.
When you're retired, you can withdraw 4% of your savings every year and not run out of money. So if you want $100,000 per year, you'll need to save $2.5 million. A regular person can invest a few hundred dollars every month and save $1-2 million over their lifetime because of compound interest. This is when your money starts working for you.

3. Invest in stock index funds, not actively managed mutual funds

"Rainy Day in Paris" by Gustave Caillebotte (courtesy Wikicommons)

Okay so let's imagine you've been eating wild clams and riding your secondhand bike everywhere and saving most of your money. (Just kidding of course!) Now would be a good time to talk about the best types of investments to put all those savings into.

Hey, you weren't planning to stuff all that in cash under your mattress, were ya?

Andrew says the first essential part of a good investing strategy are stock market index funds. Why stocks? Well, the stock market tends to grow, so converting your money into stocks can really grow your wealth. There are two main ways regular people invest in the stock market:

1. Actively managed mutual funds

2. Index funds.

An actively managed mutual fund is a collection of stocks. It is called "actively managed" because a fund manager tries to pick which stocks will go up in value and only includes those stocks into the mutual fund.
In theory, mutual funds sound like a very good idea. There's a guy who is supposed to be an expert picking the best stocks for you. However, the reality is much different. We'll explore some of the major downsides of mutual funds in a minute.

A stock market index fund is also a collection of stocks, but in this case nobody is trying to pick the best stocks. Rather, an index fund invests money equally into each stock in the market.

For example, the S&P 500 is a list of the 500 largest companies in the US. So if you invest in an S&P 500 index fund, that means you would now own a tiny part of ALL 500 companies in the market.

Why are index funds are better than mutual funds?

Andrew is clearly a huge fan of index funds, but why?

First, markets rise over time. Sure, the stock market can swing up and down wildly in the short term, but it has always grown very reliably in the long term. This means it is a safe bet to assume the stock market as a whole will grow, and this is what you're betting on when you invest in an index fund which includes the whole market. However, it is a risky bet to guess which individual stocks will grow, because seemingly indestructible companies go bankrupt all the time. Just look at Kodak or Blockbuster.

We know that stock markets can fluctuate dramatically. They can even move sideways for many years. But over the past 90 years, the US stock market has generated returns exceeding nine percent annually. This includes the crashes of 1929, 1973-1974, 1987, and 2008-2009.

Second, index funds reliably outperform mutual funds. Although banks and fund managers claim they know how to pick the best stocks, their actual performance is almost always worse. And even if a mutual fund was good in the past few years, that is no guarantee they will continue to be successful.

In a 15-year-long US study published in the Journal of Portfolio Management, actively managed stock market mutual funds were compared with the Standard & Poor's 500 stock market index. The study concluded that 96 percent of actively managed mutual funds underperformed the US market index after fees, taxes, and survivorship bias.

Third, index funds have far lower fees than mutual funds. An index fund usually costs you less than 0.5% in fees to invest in, while mutual funds are often over 2%. These fees sound small on paper, but if you do the math your jaw will drop. In the book, Andrew shares one example showing how paying just 0.82% more in fees (that's less than 1%) will end up costing you $179,389 over 45 years. So that extra 1-2% that mutual fees charge actually costs you a second house! Mutual funds need those larger fees to cover their additional expenses, including banker salaries, trading costs and sales commissions.

Finally, even the richest investor in the world Warren Buffett makes his own family use index funds! It's true. Someone asked Buffet how his family would manage their money after he dies. He said 90% of their inheritance would be put into low-cost index funds. What does it say when Buffet himself doesn't trust anyone to pick stocks more successfully than a simple index fund?

A mutual fund is a collection of stocks chosen by a professional in hopes of higher returns. An index fund lets you invest money equally into every stock on the market. Andrew highly recommends index funds because they reliably outperform mutual funds, especially when you take into account the far higher fees of mutual funds.

4. Add stability to your investing with bonds

The next major part of a good investing strategy are bonds. Bonds are basically loans you make to a government or corporation. In return for borrowing your money, they pay you annual interest.
You wealth won't grow as much in bonds as it would in stocks, but bonds are a lot more stable and safe. If stocks are the hair-raising steel roller coaster in the amusement park, then bonds are the merry-go-round.

Bonds from governments are safest, followed by bonds from reputable corporations. Andrew says stay away from any corporate bonds that advertise a high interest rate. Those are called "junk bonds" because they may be desperate and if they go bankrupt then you lose your money.

How much money should you put in stocks versus bonds?

That usually depends how old you are. Stocks provide more potential for growth, so when you're younger you'll probably want most of your money in stocks. However, bonds are more safe and predictable so as you get older you'll probably want to move more money to bonds.

If you have most of your money in stocks and the stock market crashes when you're 30 years old, it's really no big deal because you can afford to wait 5-10 years for your investments to recover. However, if that happens when you're 70 years old, then you just lost 40% of your savings and the problem is you need to live off that money today.

A rule of thumb is that you should have a bond allocation that's roughly equivalent to your age. Some experts suggest that it should be your age minus 10, or if you want a riskier portfolio, your age minus 20; for example, a 50-year-old would have between 30 and 50 percent of his or her investment portfolio in bonds.

Andrew says the best way to buy bonds is with bond index funds. These have much lower fees than actively managed bond funds.

Buying bonds means you're making a loan to a government or corporation. Bonds are much more stable and safe than stocks, but they offer less potential growth. As you get older, you should move more of your savings from stocks to bonds.

5. "Rebalance" your investment portfolio yearly for the best growth

First of all, what is a portfolio? If I heard that word as a teenager I would imagine billionaires chuckling on a yacht somewhere... But in investing, your "portfolio" simply means your collection of stocks, bonds and other investments. So "rebalancing your portfolio" means regularly making sure you still have the right percentage of your money in the right investments.

To help you understand WHY you'll need to rebalance your portfolio and how it works in practice, let's use a real-world example. Imagine a 50-year-old guy named Bob invested 50% of his money into a stock index fund and 50% into a bond index fund. But the problem is, these different investments will naturally grow at different rates.

So after one year, Bob's stocks may have grown by let's say 15%, while his bonds only grew by 5%. As a result, he now has 55% of his money in stocks while only 45% is in bonds. This is a problem because now the balance of his portfolio doesn't fit his investing goals. If Bob wanted to "rebalance" his portfolio, he would sell some of his stocks to buy more bonds, making his portfolio return to a 50/50 split of stocks and bonds.

There is another big benefit to this practice.

Rebalancing forces you to buy low, sell high

Rebalancing your portfolio almost forces you buy investments when the prices are going down, and sell investments when the prices are going up. Going back to our previous example, it was only when Bob's stocks rose in value, that he had to sell some of them to buy bonds. If the stocks had fallen in value, then he would have had to do the opposite-selling some bonds to buy more stocks.

Most investors do the exact opposite. They love to buy when the price of an investment is shooting up. If there's some exciting new tech stock, then everyone wants to jump on the train. But when the price of an investment is falling, everyone wants to sell sell sell. That's what happens during stock market crashes. The news goes into full panic mode and normally rational people start considering selling all their investments for bars of physical gold.

Warren Buffet says people forget that buying a stock is buying part of a real company. When stock prices temporarily go down, that doesn't change the value of the company at all. All that's really changed is the price. This means the company is basically on sale now, just like things go on sale in the supermarket. Warren Buffet says stock prices going down is good news for him because that is when he goes shopping for bargains.

Most people like buying shares that have risen in value and they like selling shares that have fallen in value. Smart investors don't do that. They add money to their investments every month. They rebalance once a year.

But now you might be asking, why not simply sell your stocks when they're at a peak and buy everything's cheap? Buy low, sell high, amirite?
Well, that sounds like it should be a good idea, but most investors who try to do that (it's called "timing the market") end up making a lot less money over a lifetime. Why? Because the market is so unpredictable. Nobody can really guess when the stocks will suddenly jump and if you're standing on the sidelines then you'll miss most of the gains.

Vanguard's Bogle, who was named by Fortune magazine as one of the four investment giants of the twentieth century, has this to say about market timing: After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently.

Rebalancing your portfolio is making sure you still have the right percentage of your investments in stocks versus bonds. You need to do this because some years stocks will grow much faster than bonds, or vice versa. This strategy also helps maximize your gains because you buy when prices are going down and sell when prices are going up, the opposite of most investors.

6. Look for low fees when buying index funds

"The Moneychanger and His Wife" by Marinus van Reymerswale (courtesy WikiCommons)

Whichever bank or investment company you choose to invest with, make sure the fees are as low as possible. Remember, even an extra 1% of yearly fees can easily cost you hundreds of thousands of dollars over a lifetime. With that money, you could buy an extra cottage or private plane!
So where is the best place to open an account?
In America and many other countries, Vanguard is highly recommended. This company was founded by John Bogle, who wrote some classic personal finance books himself. What's really cool is he set up Vanguard almost like a non-profit company. Everybody who invests money with Vanguard technically owns the company and this allows them to keep their fees very low, usually lower than anywhere else.

In Canada, Andrew recommend TD Bank's e-series index funds. These allow you to buy index funds automatically every month, without paying commissions when you buy or sell, and with low fees.

Andrew recommends you create a portfolio that includes a bond index fund, a domestic stock index fund and an international stock index fund. Why both a domestic and international stock index fund? To spread your risk. Even if your own country's stocks do badly for the next few years, another part of your money can still grow in international stocks. In the book, Andrew was giving advice to a 40-year-old professional named Kris and here are the exact Vanguard funds he said to buy:

Here's the allocation I recommended: 35 percent Vanguard US Bond Index (Symbol VBMFX), 35 percent Vanguard Total US Stock Market Index (Symbol VTSMX), 30 percent Vanguard Total International Stock Market Index (Symbol VGTSX)

Relatively recently, more automated ways have been created to invest in diversified index funds. One great service is Vanguard's "Target Retirement Funds." You just put all your savings into this one fund and you don't have to worry about buying different funds or rebalancing anything. They do all that for you. What's even better is they make sure the balance of stocks and bonds fits your stage of life. For example, if you plan to retire in 2050, then you would invest in Vanguard's Target Retirement 2050 Fund. Right now this fund contains more stocks, but over the next 30 years it will automatically shift to more bonds as that target retirement date of 2050 gets closer. Andrew's wife uses this type of account.

A study by Morningstar found that people who invest in these types of automated accounts often do better than investors who do everything themselves. That's probably because it removes human bias from the equation. When people just put money in every month, no matter how optimistic or pessimistic the news happens to be this week, they end up getting a better return.

In the US and many other countries, Vanguard provides some of the lowest cost index funds. In Canada, Andrew recommends TD's e-series accounts. Vanguard's Target Retirement Funds are a great automated option that does most of the work for you, you just put money in every month.

7. Counter your financial adviser's predictable objections to index funds

Andrew has discovered that for many people the most difficult part of investing in index funds is getting past the objections of their financial adviser!

Why? Because financial advisers make more money selling actively managed mutual funds. They make very little selling index funds. The truth is that most advisers are really also well paid salespeople. Asking them if index funds are good is like walking into a Honda dealership and asking if Ford cars are any good!

When you go into your bank to set up a portfolio of index funds, you should expect resistance. Andrew has come in with his friends to these financial adviser's offices to see what they say. He found that advisers have a few predictable arguments, really more like sales rhetoric.

The biggest argument you'll hear is that you get a higher return with mutual funds. They'll say index funds only provide an average return, while they can pick the top-performing mutual funds for you that will give an above-average return. However, like we said before, just because a mutual fund did well the past does not mean it will continue to perform in the future. This is proven by looking at the data:

The SPIVA Persistence Scorecard gets published twice a year. It looks at actively managed funds that are among the top 25 percent of performers. [...] There were 682 US stock market funds among the top 25 percent of performers as of March 2013. By March 2015, just 5.28 percent of them remained among the top quartile.

Second, even when mutual funds do perform a little better than index funds, those gains are quickly eaten up by the much larger fees. These include expense fees, additional trading costs, taxes and let's not forget the sales commissions.

Financial advisers make money selling mutual funds and not index funds. They say they can pick the top-rated mutual funds that give better returns, but studies show past historical performance of a mutual fund does not equal future performance. They also gloss over the much higher fees of mutual funds.

Conclusion

That's all for this summary. Personally, I thought this book was really great, like an A-Z manual for personal finance. Anybody can read this book and learn roughly what they need to do to achieve a good retirement. Now it's up to you to do it!

I'd also recommend our summary of Rich Dad Poor Dad by Robert Kiyosaki. That is a light and fun introduction to investing from the perspective of Kiyosaki's childhood in Hawaii. He also shares tips for buying real estate, opening corporations and spotting business opportunities.

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Millionaire Teacher Summary: 7 Best Lessons from Andrew Hallam

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Andrew Hallam didn't grow up filthy rich. He was one of four kids and his parents had very regular jobs as a mechanic and store clerk. So from a young age, Andrew understood that he was responsible for his own finances. As a young adult, Andrew became a private school teacher in British Columbia.

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This video explains how compounding works, the effects of market volatility and managing risk using diversification strategies.

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THE PSYCHOLOGY OF MONEY by Morgan Housel | Core Message

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1 page summary PDF

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1-Page PDF Summary: https://www.productivitygame.com/summ...​
Book Link: https://amzn.to/3rvKWvk​
FREE Audiobook Trial: http://amzn.to/2ypaVsP

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RICH DAD POOR DAD by Robert Kiyosaki | Core Message

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Please add anything related to financial literacy you think others could benefit from

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Please add anything related to financial literacy you think others could benefit from

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Compound interest explained in one minute

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Compound interest explained in one minute

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Compound Interest Explained in One Minute

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Author of the 9 money rules you should have learned in school

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"If you reach for a star, you might not get one. But you won't come up with a hand full of mud either."
Leo Burnett

I came across this quote many years ago and, looking back, it's the way my life has unfolded. Personally, I never got that star but things have been pretty damn good and the reaching was fun. I'm still at it.

Here are some of the things I've learned along the way:
Spend less than you earn - invest the surplus - avoid debt
Do simply this and you'll wind up rich. Not just in money.

If your lifestyle matches or, god forbid exceeds, your income you are no more than a gilded slave.

As individuals we only have one obligation to society: To make sure we, and our children, are not a burden to others.

The rest is your personal choice. Make your own and make the world a far more interesting place.

While giving is a fine and pleasant thing, no one has an obligation to do so. Anyone who tells you differently is trying to sell you something, most likely the idea of giving to them and/or their pet project.

Spend sparingly. Tip generously.

You own the things you own and they in turn own you.

Money can buy many things, but nothing more valuable than your freedom.

Life choices are not always about the money, but you should always be clear about the money choice you are making.

Without F-you Money you are a slave. If you have debt, you are a slave with still stouter shackles.

You weren't born to be a slave.

Carrying debt is as appealing as being covered with leeches, and has much the same effect. The idea that many, indeed most, people seem to happily cover themselves with debt is so beyond my understanding it is hard to imagine how, let alone why, the downsides would need be explained.

Take out your sharpest knife and start scraping the little blood-suckers off.

This includes car loans.
Seek respect only from those you respect On luck:

If life hasn't been turning out the way you'd hoped, take a moment. Look around. Open your eyes. There might just be some luck flowing past waiting for you to grab it.

If you are basking in the glow of your hard work, initiative and success, congratulations. Now, when you're done patting yourself on the back, take a moment and give a little thanks.

Travel slowly, avoid the sights, linger in outdoor cafes, talk to the locals, leave your camera at home, do it now, do it while you're young.
The problem with Beanie Babies, or anything else produced as a collectible, is that when people buy them they save them. They will never be rare and rare equals value.

Fads, manias and bubbles: What they all have in common is that by the time you start reading about them everywhere, the end is near.

It's OK for the other guy to get a deal, too.
You can't pick winning stocks:
If you choose to try to best the averages, God Bless and God Speed. You may well be smarter and more talented than I. You are most certainly likely to be better looking. I'll look for your name along with Warren and Peter's in the not too distant future. I extend the same to all those folks I've met in Vegas who assure me they have bested the house. I listen, gaze up at the billion dollar casinos and reflect on how many smarter, more talented and better looking people there are than me.

Index funds. End of story.

Vanguard. End of story.

This whole civilization thing has been a huge mistake and we'd all be better off as hunter/gatherers. But since we do live in this complex, technical world you had best learn about money. Money is the single most important, effective tool in navigating it.

Lead with your bright and shining example and maybe I'll follow. Berate me for not believing as you do and I'll likely tell you to go fuck yourself.

Sound investing is not complicated. Complicated investments make money only for those selling them.

Keep a mental list of people you'd like to have a cup of coffee with. Invite them.

Read.

There is nothing you can't learn, no place you can't go, if you read.
*********************************************** Addendum 1: Addendum 2: The Strangely Simple Rules of Life I couldn't have said it better myself....

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"If you reach for a star, you might not get one. But you won't come up with a hand full of mud either." Leo Burnett I came across this quote many years ago and, looking back, it's the way my life has unfolded. Personally, I never got that star but things have been pretty damn...

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Q2) what is the rule of thumb for budgeting?

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Q2) what is the rule of thumb for budgeting?

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A budget is a financial plan for a defined period.

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A budget is a financial plan for a defined period.

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Financial literacy is the possession of a set of skills and knowledge that allows them to make effective decisions with all of their financial resources.

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Financial literacy is the possession of a set of skills and knowledge that allows them to make effective decisions with all of their financial resources.

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I'm not going to lie to you - being wealthy is a lot of fun.

And I'm not just talking about novelty fun that you get from driving around in a fancy car. True wealth is more of a big picture thing - freedom from negative stress and a higher confidence about how great life is. It hits you like a pack of wild butterflies every morning when you wake up. Holy shit, here comes another great day.

I want to pass this gift along to my son if at all possible, because it is truly a great way to live. After all, as parents we are really in the business of producing the happiest and most capable adults we can, given the constraints of the real world. If my boy eventually ends up as happy with his lot in life as his parents are, we will be more than satisfied.

Surely every parent wants the same thing - to pass on their happiness if life is good, or if not, to give their kids a better life than they had. So they do their best to dish out financial advice, and to model good behavior for their offspring to emulate. Unfortunately, the results are not always good.

In a country where Ridiculous is Ubiquitous, most people's best attempts at getting ahead are in fact recipes for financial disaster. I get emails from high school and university students telling me, "Dad advised me to finance a reliable NEW car with 4WD, so I can be safe in the winter and spend less on repairs." Other people rack up $200,000 in student loans for a elite degree with few job prospects, because their parents cautioned "You can't get a good job without a degree these days." Still other families stress over how much to spend on olympic-caliber toddler birthday parties, how to afford ivy league preschools and how to fit in with the other high-income families in their private schools.

While any one of these pieces of advice might work fine for a family with infinite money, they have trickled deep down into the middle classes where they become unhelpful for those wanting to truly get ahead.

I just read a book called The Opposite of Spoiled, by Ron Lieber. While the book was thoughtful and thoroughly researched, I was still fascinated by how much things have changed since I was a kid. There were chapters on how to handle the social pressures of a high-income neighborhood. What do you do when the other kids have nicer stuff than your kids, or vice versa? How do you say no to your kids when they want things that you can't afford for them? How do you handle allowances, jobs, paying for education, mobile phones, cars, and giving to others?

All of these perceived social pressures of the Wealthy New York style of childraising were unfamiliar to me. It was three decades ago in a small town in a different country that I approached my own teenage years, and we followed a much simpler model of family finance back then. Much like the Unfrozen Caveman Lawyer, I found myself wondering "What the hell are these modern people fussing about? Do they really worry about this stuff?"

It seems to me that if we bring the financial values of a small working-class 1980s town forward to today, life gets a lot simpler for kids. And in the long term, richer.
Little Money Mustache and Money
In our household, money is an open subject without any attached baggage or taboos . Our 9-year old knows exactly how money is earned, what happens when you spend it (it's gone), and what happens if you invest it instead (it works for you, for life).

Since we retired just before he was born, he has grown up with the idea of financial independence - if you own assets like rental houses or shares of businesses, they provide income which means you don't have to leave home for 9 hours every day and commute to an office unless this is your idea of fun. He sees this by comparing the daily routine of his own parents, to what other parents do each day.

So ever since he has been old enough to have a use for money himself (age six or so), I have tried to give him a chance to learn for himself how it works.
Making Money:
Being a kid is quite a lucrative proposition these days. On top of the free rent, he gets occasional cash gifts from relatives and a salary from me that consists of 10 cents for every mile walked or biked as part of family life. These tend to add up in a mostly-car-free family, as he already has more than 1200 miles on the little 20″ tires of his mountain bike and we wear through quality shoes before growing out of them.

Over the coming years, I'm expecting him to move from these little-kid sources of income into more independent ones. Whether he pursues traditional employment or hardcore full entrepreneurship right off the bat is up to him*.

Some parents like to focus on academics: " Until you graduate, getting good grades is your only job." But I like to think of a good education as a highly diverse set of experiences. Working and earning your own money at any age - even if it includes stocking shelves and assembling wheelbarrows at a hardware store - is a key part of this. School is just a tiny part of a kid's education, and not even the most important part. In fact, my most vibrant experiences from high school were side effects of work rather than classes at school.
The Spreadsheet:
This is where things get a bit unconventional. Instead of a physical piggy bank, my boy prefers to keep his money in the Bank of Mr. Money Mustache, a spreadsheet that contains every transaction he makes with money. To make a deposit, he just hands me some cash. To withdraw, he asks me for cash or has me buy something for him online.

But for every dollar that remains in the account, he accrues interest at a 10% annual rate with monthly compounding. I'm excited about the teaching value of this, because it shows him that

his money is finite (not just a limitless pool that you tap by nagging parents to buy you stuff)

keeping the money invested is profitable (his $600 account is now bringing in a very tangible $5 per month in interest)

new windfalls can be added, interest compounds exponentially, and an account like this of sufficient size means lifelong financial freedom

Where the Money Goes:
Right now, he has only a few true consumer loves in his life: PC games, books, NERF guns, and the occasional phone or tablet app. So he has spent over $100 on those things (quite a large percentage of income) in the past year. But in most cases, he has felt the fun value has been worth the spending.

Interestingly enough, he has already started to display a high degree of generosity. When something breaks in the house or another kid doesn't have enough money to pay for something they want, he immediately offers up a large sum of his own money to cover the shortfall.
What the Parents Cover:
Meanwhile, I still cover the basic infrastructure of educational childhood fun - to build his computer I bought about $500 of parts and we assembled them together into a pretty spiffy gameworthy PC. We build robots with a $400 kit of VEX IQ stuff, and many books, bits of outdoor equipment and trips come for free as part of being in the family. Any organized activities also come from this freebie budget, at least until he reaches his teenage years. But like his Dad, he has shown a strong preference for self-guided activities with friends rather than adult-organized ones so far, and I'm happy to let him continue with this style.
Living By Example, and Giving:
In Ron Lieber's book, the tricky subject of "why do we have so much, when these other people have so little?" comes up. It's a good one, because this observation is often the gateway to taking an interest in helping other people. But for me, it would be hard to answer a question like that while living at the pinnacle of American luxury with multiple homes, boats, and jets. Since our annual spending of around $25,000 is lower than average for our own country, and it stays that way even in years when we make many times that amount, I'm hoping the example of "spending does not need to scale with income" will jump to the next generation.

When your own needs are capped, it becomes only logical to find an efficient outlet for the surplus money. So there is an understanding that we operate with an informal, non-billionaire's version of the " giving pledge ", meaning there will be no large Mustache family inheritance - each generation will be left free to generate its own massive surplus.
Higher Education, Performance, and Stress:
For me, this is where the rubber really meets the road. If you can't leverage money to live more happily, then what good is it? And yet consider the stunning case study of the children of the nation's uber-wealthy enclaves like Palo Alto, California. Despite incredible wealth and some of the best educational institutions money can buy, kids there are more stressed, less happy, and more likely to commit suicide than others who live with a fraction of their privilege.

The problem arises when high-achieving parents assume that their kids need to be pushed to achieve more themselves, to beat out the other high achievers and gain access to the most elite schools, in order to compete in this incredibly challenging modern world.

Remember way back when I started this blog in April 2011? Right there in the first paragraph of the first post, we hit this sentence:

"... when it boils down to it, we are talking about money, and the freedom it can give you. Freedom from worry, and freedom from most forms of bullshit."

To me, raising kids to feel pressure and fear so they can be COMPETITORS is bullshit. Life is not a competition. It's a gigantic collaboration, and the world welcomes and rewards people who see it that way.

It may be that most parents of the very-upper-middle class are still operating from a scarcity mindset. If they are addicted to a high consumption lifestyle, earning $600,000 per year but still making car and house payments, they will assume that their children will need to earn and consume just as much in order to be happy. This of course dictates a job in the top fraction of the top percent of the economy, and education with enough prestige to secure such a job.

On the other hand, having crossed the threshold of having more than enough money for a good life almost a decade ago, I cannot even imagine my son not earning a plentiful and permanent surplus very early on in his adult life. Thus, there is no need to fight for traditional elite status. It is much more efficient to rise up to into your own niche without the constant drag of material addiction telling you you aren't good enough. Paradoxically, this path is rare enough that you might end up earning even more money in the end.
What I Really Want Him to Learn:
All of this kid stuff is just the groundwork for the bigger (and slightly radical) perspective on money that I want to instill over his lifetime: that money is something you can master and control, rather than letting it control you.

Observe the following statements and see if you agree with them. While you can poke holes and find exceptions to each one, the overall philosophy is remarkably true if applied forcefully over a lifetime:

Income is not something that employers or the government ration out to you based on a rigged system. It is something you generate yourself. It is the byproduct of your hard work, combined with learning and mastering the system itself. Even the system itself is subject to your control if you choose.

"Expenses", "Needs", and "Cost of Living" are terms that come from a mindset of weakness. Instead, use the words, "My Spending", and realize it is in your control. By making the right moves and the right arrangements with other people, you could theoretically live for free. You can end up in any job, any city, any country, with any number of additional dependents - all at your own choosing. Even if you don't exercise every last option in life, knowing that you have complete power over your spending is a key ally for financial freedom.

And finally, money is not the end of the quest of having a good life. While it is currently a major barrier to most people, it is easy to master it early in your life. Then you move on to the real challenges: finding out what life is really about. Hard work, being good to others, a good amount of proper difficulty, and learning as much as you can pack in during your time alive.

This is my experience so far in raising a Junior Mr. Money Mustache. Although I feel the foundation is solid, like everything in life it is an ongoing experiment. I'll let you know how it turns out.
* My first jobs were paper route, lawn maintenance, and gas pump jockey. Then I moved up to more prestigious and comfortable jobs of working in the town hardware store and eventually cashier in the 24-hour convenience store. Out of this list, I'd only discourage a teenager from pursuing gas station work - avoiding toxic vapors during key periods of brain growth seems wise in retrospect.

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I'm not going to lie to you - being wealthy is a lot of fun. And I'm not just talking about novelty fun that you get from driving around in a fancy car. True wealth is more of a b...

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Bright Lights: what one woman's 25-year gambling addiction really cost

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What is a budget planner?

A successful budget planner helps you decide how to best spend your money while avoiding or reducing debt. NerdWallet recommends the 50/30/20 budget , which suggests that 50% of your income goes toward needs, 30% toward wants and 20% toward savings and debt repayment.

Automate your budget with NerdWallet

Track spending by category, compare months and spot ways to save.

Use the free budget worksheet below to see how your spending compares to this kind of budget.

Monthly budget worksheet

Create a budget plan that works for you

The best budget planner is one you can live with, so tweak your approach as needed. For example, the 50/30/20 breakdown is a recommendation to help you get started. Adjust your spending as needed until you reach your ideal budget.

And if a hands-on worksheet isn't working for you, consider one of these budget apps . Most of them sync with your financial accounts, so they can track and categorize expenses for you.

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Free Budget Planner Worksheet - NerdWallet

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What is a budget planner? A successful budget planner helps you decide how to best spend your money while avoiding or reducing debt. NerdWallet recommends the 50/30/20 budget , which suggests that 50% of your income goes toward needs, 30% toward wants and 20% toward savings and debt repayment.

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Budgeting is an essential life skill that helps in acquiring financial knowledge for planning and managing money. It is one of the most important components of financial literacy. It is necessary to keep a tab on one’s spending habits. Optimal money management will help in creating an actionable financial plan. The actionable plan will help in tracking the expenses, segregating the unnecessary ones and help in spending money wisely.  This way, one can save more. The thumb rule for budgeting is that income has to be greater than the expenses. The difference between the two (income and expenses) is what helps in stashing up as savings.

Budgeting helps in planning for short, medium and long term expenses. It enables individuals to save accordingly. Hence, one doesn’t require to compromise on any of their goals. Therefore, budgeting is vital for financial security and independence.

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Income - expenses = 0

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Download this app for apple iPhone / iPad

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Download this app for apple iPhone / iPad

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It's free

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"Money Manager Expense & Budget " is an optimized application for personal account management.

Household account management is complicated. But we make it simple by simplifying the things that are complex. The default settings will get you started, and once you get used to it, you can alter the settings according to your needs with the highly flexible and customizable functions available.

- Super easy and simple to enter data anytime, anywhere.
- View your spending tendencies graphically.
- View statistics by simply entering the data.
- Search and calculator functions.
- Set up sub-categories and main categories as necessary.
- Manage all your accounts at once.
- Use multiple currencies.
- Check weekly, monthly, and annual statistics.
- Use the calendar view.
- Use budget planning features to plan weekly, monthly, and annual budgets.
- Change the start date of the month.

※ Applying double entry bookkeeping
It facilitates efficient account management. Automatic double entry bookkeeping.

※ PC manager function
You can view '"Money Manager" application using Wi-Fi. You can edit and sort the data by date, category or account group on the screen of your PC. In addition, you can see fluctuations of your accounts indicated on graphs on your PC.

※ Budget management function
You can manage your budget. It shows your budget and expenditures on a graph so you can compare a number of your expenditures against your budget quickly.

※ Credit Card / Debit Card management function
When entering a future payment date, you can see the payment amount and outstanding balance on the accounts page. You can connect your debit card to your accounts so that expenses are automatically recorded under a specific account.

※ Passcode
You can specify the desired time lapse before the app requests a passcode.

※ Automatic money transfer and frequency functions
You can set up automatic money transfers between your accounts and configure the frequency of those transfers.

※ Sort expenses by the recipient
You can sort your expenses by the recipient and view this information graphically.

※ Payment Profiles
You can easily enter frequent expenditures by creating payment profiles.

※ Backup / Restore
You can backup and restore your data via email, iTunes and iCloud.

※ Multiple currency support - you can have individual entries in multiple currencies, and configure each account to calculate the total balance in your desired currency.

In Full Version.
Manage from PC is available.
There are no Ads.
There is no limit the accounts.
(In the lite version, 10 accounts is available.)

Version 2.7.24

Dark theme has added.
White theme has added.
Minor bug fixed.

Helps Me Save Money

Love love this app. 3 months ago I decided I wanted to create a budget and track where my money goes, I eat out every day and use lots of cash as well as debit to pay. I downloaded about 10 budgeting apps at the same time to discover which one was the best to keep. I downloaded well-known apps that were too complicated to use and some that were too simple and thus did not have the features that I wanted such as being able to transfer money between accts. I loved this one out of all, it is free and the ads are small and kept at the bottom so they are not annoying at all. This app is simple yet has many features. It has a calendar so you are conscious of how much money is spent daily/weekly/monthly. You can create different accts such as cash acct, debit, credit, savings, investments and transfer money between accts. Once you do spend on an account, the expense can be deducted from your budget. This app has helped me realize how much I spend eating out and each month I am setting a more reasonable food budget that has allowed me to save some money. I am keeping this app.

Love this app

I really do love this app and all its features. I don't really have anything negative to say about it. A couple things I would change are that you cannot have multiple accounts on there. I am attempting to start a business and would like to have an account for my business and for my personal finances. Also that I want to keep track of where my money is going in the sub categories. I have to make multiple transactions on the same day for the same receipt. Example is buying different things for your house like groceries, car maintenance stuff, gifts for holidays, and clothing and such are charged to your card but you would have to do separate charges on the app to account money into different categories. If this was streamlined and showed one charge on the app and when you went to the expense and income graphs it would have it divided into categories that you wanted to put it into.

My favorite app

This is the most efficiently useful app in my life. I have tried so many tracking-related apps: journals, time tracking, expenditure tracking, etc. Every app has been only disappointing because of their uncomfortable UI and inefficient layouts.
However, I love this app so much because it's the best money tracking app I have ever used on my phone. It's convenient, it shows your spending and income in various different form that you will be seeing what you need and want to see. You can add categories of your own to track money adapted to your own life style, you can set up a budget in every categories and shows how far you have been. I recommend it to everyone around me. This is extraordinary!

The developer, Realbyte Inc., indicated that the app's privacy practices may include handling of data as described below. For more information, see the developer's privacy policy.

Data Not Linked to You

The following data may be collected but it is not linked to your identity:

Identifiers

Usage Data

Diagnostics

Privacy practices may vary, for example, based on the features you use or your age. Learn More

Information

Compatibility

Requires iOS 11.0 or later. Compatible with iPhone, iPad, and iPod touch.

Languages

English, Bengali, French, German, Indonesian, Italian, Japanese, Korean, Polish, Portuguese, Romanian, Russian, Simplified Chinese, Spanish, Traditional Chinese, Turkish, Ukrainian, Vietnamese

Copyright

© 2017 Realbyte Inc.

Family Sharing

With Family Sharing set up, up to six family members can use this app.

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‎"Money Manager Expense & Budget " is an optimized application for personal account management. Household account management is complicated. But we make it simple by simplifying the things that are complex. The default settings will get you started, and once you get used to it, you can alter the...

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It's free

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Money Manager - the #1 financial planning, review, expense tracking, and personal asset management app for Android!

Money Manager makes managing personal finances as easy as pie! Now easily record your personal and business financial transactions, generate spending reports, review your daily, weekly and monthly financial data and manage your assets with Money Manager's spending tracker and budget planner.

* Applying double entry bookkeeping accounting system
Money Manager facilitates efficient asset management and accounting. It does not just record your money coming in and out of your account but deposits your money into your account as soon as your income is input and draws money from your account as soon as your expense is input.

* Budget and expense management function
Money Manager shows your budget and expenses by a graph so you can see the amount of your expense against your budget quickly and make suitable financial inferences

* Credit / Debit Card management function
Entering a settlement date, you can see the payment amount and outstanding payment at the asset tab. You can arrange the automatic debit by simply connecting your debit card with your account.

* Passcode
You can check passcode so you can safely manage your financial review account book with Money Manager

* Transfer, direct debit and recurrence function
Transfer between assets is possible, which makes your personal and business asset management more efficient. In addition, you can manage you a salary, insurance, term deposit and loan more easily by setting automatic transfer and recurrence.

* Instant statistics
Based on the data entered, you can instantly see your expense by category and changes between each month. And you can see the change of your assets and income/expense indicated by a graph as well.

* Bookmark function
You can easily input your frequent expenses all at once by bookmarking them.

* Backup / Restore
You can make and view backup files in Excel file and backup/restore is possible.

* Other functions
- Change of starting date
- Calculator function (Amount > upper right button)
- Sub Category ON-OFF function

* Paid version *
- No Ads.
- Unlimited Assets (In the free version, limited to 10.)
- Edit PC (http://youtu.be/5S4S3EQ3AZE)

You can view '"Money Manager" application using Wi-Fi. You can edit and sort the data by date, category or account group on the screen of your PC. In addition, you can see fluctuations of your accounts indicated on graphs on your PC.

So, what are you waiting for? Download Money Money right now and start managing, tracking, and planning your budget, expenses and personal finances!

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Money Manager Expense & Budget - Apps on Google Play

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Money Manager - the #1 financial planning, review, expense tracking, and personal asset management app for Android! Money Manager makes managing personal finances as easy as pie! Now easily record your personal and business financial transactions, generate spending reports, review your daily, weekly and monthly financial data and manage your assets with Money Manager's spending tracker and budget planner.

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The word "budget" has the power to make a lot of people panic, as it has a reputation for being both tedious and challenging.

Personal finance and budget software apps can take the tedium and challenge out of the budgeting process. They can help you stick to a spending plan, and many come with handy extra features depending on your needs.

Top 8 Personal Budget Software Apps

What Does a Personal Budget Software App Do?

Personal budget software apps can help you manage your budget, spending habits, and saving habits on the go. They provide a budget template so you don't have to create one from scratch. Each app offers basic features and possibly unique features to help you stay on track. Some budgeting apps also can help you track credit card balances and money in banks and brokerages.

How Much Does a Personal Budget Software App Cost?

Personal budget software apps generally aren't very expensive. Some cost as little as $1 per month and have just one or two features like rounding up your spare change and investing it for you. Apps with more features, such as built-in budgeting tools and helpful tips, may cost around $6 to $12 per month.

Is a Personal Budget Software App Worth the Cost?

Personal budget software apps are worth the cost if you have tried and failed to budget on your own. Such apps can help build positive habits if you commit to inputting your data and following the budget you create. It's probably not worth the cost for people who already successfully follow a budget, pay bills on time, and have an investment plan.

How We Chose the Best Personal Budget Software Apps

We chose these best apps based on the features and tools they offer, their prices, ease of use, compatibility with devices, and their financial goals.

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The 8 Best Personal Finance and Budgeting Apps

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The word "budget" has the power to make a lot of people panic, as it has a reputation for being both tedious and challenging. Personal finance and budget software apps can take the tedium and challenge out of the budgeting process.

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Click below for the free budget template that matches your lifestyle

Everyone needs a budget, whether you're married with kids or a student embarking on an educational journey. While making and sticking to a budget may seem like a daunting task, the process can actually be easier than you think. There are a number of ways to save a few bucks every month.

Here are 4 helpful tips to get you started.
1. Skip the Credit
If you don't have the liquid cash to buy something, then don't. Adding onto mounting credit card debt can be a dangerous thing, especially if you don't have much willpower in the spending department. Sure, having a credit card may seem like a life-saver at times, but if you don't have the funds available to pay off your bills in full and on time every month, you can find yourself quickly being buried in interest charges.
2. Don't Let Food Eat Up Your Finances
As a student, eating out may seem like the easiest thing to do when it's feeding time. While there most likely isn't a shortage of restaurants and eateries in and around your school, you might be leaving your wallet empty at the end of the month while your stomach may be full.

It's fine to eat out every now and then, but the majority of your meals should be eaten in. Make sure you are careful about how much you're spending on dining out. Take advantage of grocery store specials and prepare most of your meals yourself to save a bundle at the end of the month.
Creating a budget - and sticking to it - can help you keep your finances in check 3. Buy Used Textbooks Whenever Possible
Textbooks can be a massive expense when you're in college. While you can't really do without them, you can buy them at significant savings when you shop in used book shops.

Many colleges and universities have used student co-op bookstores where you can either buy textbooks used, or even rent them for a certain time period. In addition, unless you need your old textbooks for future needs, sell them when you're done with them, and put that money towards next year's books.

Click here to download the XLS file student budget template.xls.
4. Sit Down and Create Your Budget
An effective budget needs to be put down on paper or via a spreadsheet from a student budget template. On this budget, make a list of all your forms of incomes (including your job, loans, parents, etc.), followed by all your expenses (such as rent, books, food, etc.).

Make sure to differentiate between your needs versus your wants. The final number that you calculate should not be a negative number. If it is, you need to make some adjustments to make sure your take-home pay covers all your expenses.

To make things simple for you, consider taking advantage of an effective online tool to help you set up a budget and manage your finances. Mint.com offers free, unbiased recommendations to help you save money and budget effectively. This online service offers tools and advice to help you understand your finances and clearly see where your money is going. Click here to try Mint for free.

Sign up for Mint today

From budgets and bills to free credit score and more, you'll
discover the effortless way to stay on top of it all.
Learn more about security

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Use a Student Budget Template to Track Spending

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Click below for the free budget template that matches your lifestyle Everyone needs a budget, whether you're married with kids or a student embarking on an educational journey. While making and sticking to a budget may seem like a daunting task, the process can actually be easier than you think.

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What is financial literacy? Why is is so important and how to improve your skills?

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What is financial literacy? Why is is so important and how to improve your skills?

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Financial literacy is the ability to manage one's money. The goal of financial literacy is to help in understanding financial concepts that will help them to manage their money better. It is a life skill that one must grasp for good financial wellbeing. Financial literacy includes budgeting, investing, insurance, and loans and interest. In this article, we have covered the importance of financial literacy and how can one improve their financial literacy skills.

What is financial literacy?

Financial literacy is the ability to understand and effectively use financial skills. These financial skills are as simple as budgeting, investing, credit management, and financial management. In other words, financial literacy is the ability to manage money. A strong foundation of these financial skills will help in achieving various life goals like retirement, education, and even going on a vacation.

Financial literacy includes many skills. However, the most popular ones are budgeting, managing expenses, paying off debt and understanding the risk return trade off in investment products. Acquiring these skills would require one to understand the basic financial concepts like time value of money, compound interest, annualized return and opportunity cost.

With an abundance of credit products available in the market like credit card debt, overdraft facility on debit cards, and EMI, financial literacy becomes important. Understanding debt and having basic financial knowledge will help individuals to use these products responsibly.

Financial literacy often teaches individuals how to make major financial decisions. Moreover, it increases financial discipline and financial capability. This will lead to major lifestyle changes like saving and investing regularly, managing debts effectively and fulfilling life goals efficiently. Additionally, financial literacy will ensure one's financial wellbeing and also protect individuals from financial frauds.

Lacking the knowledge of these skills leads to financial illiteracy. Financial illiteracy leads to budget mismatch, higher expenses than income, accumulation of debts, poor credit score, being victims to financial frauds, and other negative consequences.

Why is financial literacy important for you?

Financial literacy is important because it equips one with the knowledge and skill to manage money effectively. Without financial literacy, the actions and decisions one make or do not make with respect to savings and investments would lack a strong foundation. Financial literacy helps in understanding financial concepts better and enables one to manage their finances efficiently. Furthermore, it helps in effective money management, making financial decisions, and achieving financial stability. Moreover, financial literacy provides in depth knowledge of financial education and various strategies that are indispensable for financial growth and success. Also, it enables one to be debt free by adopting the best debt strategies.

One can understand the importance of financial literacy by understanding the four components of financial literacy better. They are:

Budgeting is an essential life skill that helps in acquiring financial knowledge for planning and managing money. It is one of the most important components of financial literacy. It is necessary to keep a tab on one's spending habits. Optimal money management will help in creating an actionable financial plan. The actionable plan will help in tracking the expenses, segregating the unnecessary ones and help in spending money wisely. This way, one can save more. The thumb rule for budgeting is that income has to be greater than the expenses. The difference between the two (income and expenses) is what helps in stashing up as savings.

Budgeting helps in planning for short, medium and long term expenses. It enables individuals to save accordingly. Hence, one doesn't require to compromise on any of their goals. Therefore, budgeting is vital for financial security and independence.

Debt is nothing but one's borrowing. One is spending money that isn't theirs. For example, if an individual borrows money from the bank or uses a credit card or takes a short term loan. All these become part of the debt.

Mostly, debt is perceived in a negative aspect. Which makes understanding debt very important. However, not everyone can buy a house or car or pay tuition fees with cash. In such scenarios borrowing or taking a loan is the only way out. But the most important thing is to differentiate between good debt and bad debt. Also, one should always aim to avoid bad debt as much as possible. This is the basics of debt management.

Good debt is borrowing money for things that are necessary for making a living. For example, buying a home or paying education expenses. On the other hand, bad debt is borrowing money for unnecessary expenses. For example, using a credit card to buy expensive clothes or electronic gadgets, etc.

Therefore, being able to differentiate between necessary and unnecessary expenses will help an individual from not drowning in heavy debts.

Saving ensures financial wellness, a secure present and an uncompromised future. One can build wealth in the long term through proper financial planning. Keeping a tab on one's spending habits will help in saving money. Therefore, through savings, one can easily achieve the following:

Achieve important financial goals. For example, full payment of a home loan, kid's education, and retirement savings.

Create an emergency fund. An emergency fund acts as a cushion during unexpected life events. The fund should have at least six months worth one's income.

Inculcate financial discipline. Through saving money regularly, one can achieve financial discipline and excel in their life.

Instead of holding the money idle in a bank account, one can divert it to financial instruments. Investing is all about generating and growing wealth to enjoy a secure and happy future. It is all about putting money in an avenue that will help in generating significant returns over time. Investments will help in generating additional monthly income and significant returns. One can also achieve their financial goals at the same time allocate funds towards retirement saving. Some of the widely used investment options are equities, debt instruments, mutual funds, real estate, and gold.

Therefore, becoming financially literate will help in:

Building wealth

Protecting oneself in case of emergencies

Achieving goals

Securing one's family future

Retirement planning

Lead a stress free life

How to improve your financial literacy skills?

Developing financial literacy skills is essential. It helps in improving personal finance management. Personal finance is a process which involves learning, practising and applying a variety of financial skills. It ranges from budgeting, managing, paying off debt, understanding credit and various investment products. The following will help in improving financial literacy skills:

Create a budget: One should start tracking their income and expenses on a monthly basis. This will help in segregating necessary and unnecessary expenses.

The budgeting process should include:

Income (payslips, investments etc.)

Fixed expenses (bills, rent, loan payments, etc.)

Other expenses (shopping, travel, etc.)

Savings

Manage bills: One has to ensure they are paying bills promptly. Choose auto debit options for recurring bills from the bank account. Set up payment reminders to stay on top of monthly bill payments. Paying bills should not be postponed or neglected. Hence one needs to make it as a priority in their budgeting.

Maintain a good credit score: Having a good credit score will help in getting the best interest rates on credit cards and loans. Therefore, aim to maintain a good score that will help in the case of borrowings.

Manage debt: Manage debt by reducing spending and increasing repayments. Have a debt reduction plan that will help in reducing the liability. For example, paying off loans with high interest rates first.

Start saving and investing: Savings is not difficult when it is done systematically. After proper budgeting, all the one has to do is identify financial goals and put their financial resources to optimal use. One can divert their financial resources (savings) towards investing. Investing in a goal will help individuals achieve them easily. Small and regular savings will help in realizing life goals without much stress. Systematic investment plans will enable individuals to save a fixed amount regularly every month. Also, the key to generating significant returns is to have a long term investment horizon. Therefore, one should have a good strategy for identifying financial goals, segregating them as short, medium and long term goals and investing. Also, it is important to be patient with investments and not get panicked with market volatility. Furthermore, one can consult a financial advisor for planning their investments.

Conclusion

Financial literacy is a major life skill one needs to have as it increases your financial capability. Planning finances, managing budgets and savings should be taught right from the school days. However, it's never too late to learn about it. One can improve financial literacy by understanding the components of it. One can always begin their investment journey even after they turn 50. But starting early has its own benefits.

Let Scripbox help you in managing your money optimally. Scripbox is a financial solution provider who will customize a plan for you to convert your savings into investment. All one has to do is to set their goals and plan their finances. Make a budget and save money. We will help to convert the savings into investments and guide in achieving life goals. Scripbox's readymade plans are available where one can choose any life goal. Alternatively, we customize plans based on individuals' goals and finances.

So why wait, when you can start your investment journey today. Happy Investing!

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What is Financial Literacy? How to Improve your Skills? | Scripbox

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Financial literacy is the ability to manage one's money. The goal of financial literacy is to help in understanding financial concepts that will help them to manage their money better. It is a life skill that one must grasp for good financial wellbeing. Financial literacy includes budgeting, investing, insurance, and loans and interest.

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Q5) how does income tax work in Hong Kong? (and elsewhere...)

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Q5) how does income tax work in Hong Kong? (and elsewhere...)

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Q4) explain what an emergency fund is and how it is useful?

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Q4) explain what an emergency fund is and how it is useful?

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Q3) Explain the difference between good and bad debt?

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Q3) Explain the difference between good and bad debt?

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Want less stress? Follow these four easy steps to take control of your money.

What Kind of Budget Does Dave Ramsey Recommend?

A budget is a plan for how you're going to spend your money. It puts you in charge and in control of every dollar that you earn or spend. Dave recommends telling every dollar where it should go-before the month begins-using a zero-based budget. This means that your income minus your expenses equals zero.

Remember that feeling you had when you found $20 in your old coat pocket? That's the same feeling you'll have when you create (and stick to) a budget. You'll find money you didn't even know you had-and build wealth doing it!

Start Budgeting

Tools You Need to Get Started

Whether you want to create your budget online or on paper, we've got you covered!

From the Blog

The worst part about the budget isn't that it's difficult (because it's not). The worst part is all the misunderstanding and myths floating out there about why you shouldn't budget.

Want to treat yourself with some guilt-free spending? Learn the importance of including fun money in your budget.

"Budgeting is too difficult!" That's one of the most common reasons why many people don't budget. They either don't understand what a budget is or they truly don't know how to efficiently put one together.

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How to Budget Using Simple, Zero-Based Budgeting

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Want less stress? Follow these four easy steps to take control of your money. A budget is a plan for how you're going to spend your money. It puts you in charge and in control of every dollar that you earn or spend.

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Create a new spreadsheet and edit with others at the same time -- from your computer, phone or tablet. Get stuff done with or without an internet connection. Use Sheets to edit Excel files. Free from Google.

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This is more geared towards a family but can be useful to look at to see how your financial budgeting and planning becomes more complex with time and life situation changes

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In Hong Kong, personal tax is often referred to salary tax. This article provides you with an overview of the salary tax system in Hong Kong. You will learn about the salary tax rate, allowable deductions for employees, tax benefits for employers and requirements of filing tax returns.

1. Calculating Net Chargeable Income

2. What Income is Considered Earned in Hong Kong?

3. Tax Treatment of Employer Benefits

4. Capital Gains Tax, Inheritance Tax or Estate Duty

5. Filing Personal Tax Return

6. An Attractive Relocation Destination

Both corporate and personal tax rates of Hong Kong are considered as one of the lowest in the world.

Unlike flat corporate tax rate, Hong Kong's salary tax rates follow a progressive tax rate system. There are five marginal tax brackets of 2%, 6%, 10% and 14% and 17%.
The key features of Hong Kong's salary tax are as follows:

Individuals are taxed at progressive rates on their net chargeable income (i.e. assessable income after deductions and allowances) starting at 2% and ending at 17%; or at a standard rate of 15% (2013/14 onwards#) on net income (i.e. income after deductions), whichever is lower.

There is no capital gains tax, no dividend tax and no inheritance tax in Hong Kong.

Hong Kong follows a territorial principle of taxation. Individuals are taxed only on income that has been "earned in Hong Kong".

Hong Kong resident individual taxpayers can potentially reduce their tax burden by electing for personal assessment. Under personal assessment, tax is calculated at progressive tax rates on the aggregated income from all sources. More detailed information on this is provided later in this guide.

A year of assessment runs from April 1st to March 31st of the following year.

#Until superseded.

Note: To estimate your Hong Kong personal income tax, please refer to Hong Kong Tax Calculator.

Estimate your annual taxes

See how Hong Kong stacks up against your home country.

Tax Calculator

Calculating Net Chargeable Income

Personal Income Tax Rates

For guidance purposes, the approximate exchange rate for Hong Kong dollar is 1 USD = 7.8 HKD.

A person's income from employment, less allowable deductions, charitable donations and personal allowances, is chargeable to salaries tax at the following progressive rates: (Year of Assessment 2018/19 onwards#)

Net Chargeable Income (in HKD currency)Rate

0- 50,000 HKD

2%

50,001- 100,000 HKD

6%

100,001- 150,000 HKD

10%

150,001- 200,000 HKD

14%

Above 200,001 HKD

17%

Net total income (no allowances)

Standard rate 15%

#Until superseded.

Net chargeable income or income subject to taxation is determined as follows:

The maximum tax payable is, however, limited to tax at the standard rate of 15% on the person's income from employment less allowable deductions and charitable donations, but without a deduction for personal allowances.
Net Chargeable Income = Income - Deductions - Allowances
Please, note that the basic allowance applicable to all tax payers in Hong Kong is 132,000 HKD (2018/19 onwards#).

Whereas total income includes:

Salaries, wages and director's fees

Commissions, bonuses, leave pay and end-of-contract gratuities and payments in lieu of notice accrued on or after 1 April 2012.

Allowances, perquisites and fringe benefits such as cash allowances, liability of employees discharged by employers, convertible benefits, education benefits and holiday journey benefits

Salaries tax paid by employer

Termination payments and retirement benefits including accrued benefits received from recognized occupational retirement schemes or receipt or deemed receipt from mandatory provident fund schemes

Pensions

Back pay, gratuities, deferred pay and pay-in-arrears

Stock awards and share options obtained from holding an office or employment

Tips received from your employer or any other person

Rental value of a place of residence that has been provided by the employer

Non-assessable income includes:

Severance payments and long service payments that are payable under the Employment Ordinance are not assessable income. However, any amount in excess of an employee's entitlement under the Employment Ordinance is assessable to salaries tax.

Jury fees.

Allowable deductions and allowances include:
Deductions allowable under Salaries Tax and Personal Assessment:

Outgoings and expenses

Qualified outgoing and expenses under very stringent conditions

Depreciation and capital allowances for plant and machinery that have been used to generate assessable income

Self-education expenses

Approved charitable donations

Contributions to a Mandatory Provident Fund Scheme or Recognized Occupational Retirement Scheme

Home loan interest, subject to certain qualifying conditions

Elderly residential care expenses

Personal allowances include:

Expenses of Self-Education

100,000 HKD

Elderly Residential Care Expenses

100,000 HKD

Home Loan Interest

100,000 HKD

Mandatory Contribution to Recognized Retirement Schemes

18,000 HKD

Approved Charitable Donations [(Income - Allowable Expenses - Depreciation Allowances) x Percentage]

35%

Basic allowance

Married person's allowance

Child allowance

Dependent brother or dependent sister allowance

Dependent parent or dependent grandparent allowance

Additional dependent parent or dependent grandparent allowance

Single parent allowance

Personal disability allowance

Disabled dependent allowance

Basic allowance

132,000 HKD

Married Person 's Allowance

264,000 HKD

Child Allowance (For each of the 1st to 9th child)

120,000 HKD

For each child born during the year, the Child Allowance will be increased by

120,000 HKD

Dependent Parent and Dependent Grandparent Allowance (For each dependant) (1) Parent / grandparent aged 60 or above or is eligible to claim an allowance under the Government's Disability Allowance Scheme (2) Parent / grandparent aged 55 or above but below 60

(1) 50,000 HKD (2) 25,000 HKD

Additional Dependent Parent and Dependent Grandparent Allowance (1) Parent / grandparent aged 60 or above or is eligible to claim an allowance under the Government's Disability Allowance Scheme (2) Parent / grandparent aged 55 or above but below 60

(1) 50,000 HKD (2) 25,000 HKD

Single Parent Allowance

132,000 HKD

Personal Disability Allowance

75,000 HKD

Disabled Dependant Allowance (For each dependant)

75,000 HKD

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What Income is Considered "Earned in Hong Kong"?

Salaries tax is imposed on all employment income arising in or derived from Hong Kong. In other words, if your source of employment is in Hong Kong, i.e. you are employed by a Hong Kong company to work in Hong Kong; your full income is chargeable to salaries tax.

However, you can claim full or partial exemption of income or tax relief, under the following circumstances on a year-by-year basis:

If all services are rendered outside Hong Kong during a year of assessment (unless you are a civil servant or a crew member of a ship or an aircraft) you are exempt from paying salaries tax for that particular year of assessment. Income from services rendered in Hong Kong during visits not exceeding a total of 60 days in the year is also exempt from tax. Whether the nature of a trip to Hong Kong is a "visit" or not is assessed by authorities on a case-by-case basis.

If part of your income has already been charged to tax in another territory during the year of assessment, you can claim partial exemption of income from salaries tax in Hong Kong. However, you will have to furnish evidence of foreign tax payment.

If your source of employment is outside Hong Kong, i.e. you are employed by an overseas company but are assigned to work in Hong Kong for a few years by your overseas employer; you are only assessed on the income attributable to the services you render in Hong Kong.

Tax Treatment of Employer Benefits

Most gains and profits derived by you in respect of your employment are taxable.

The gains or profits include benefits, whether in money or otherwise, paid or granted to you in respect of employment. Some common examples of taxable benefits include:

Accommodation and housing allowance

Meal allowance

Education benefits for your children

Company gifted car

Holiday journey allowances

Share awards and share options

Note that some of the non-cash benefits are taxed using special formulas. Further details on this are outside the scope of this guide.

Capital Gains Tax, Inheritance Tax or Estate Duty

Capital gains refer to investment income that arises in relation to stocks, bonds or real estate. Hong Kong does not impose any capital gains tax.

Inheritance tax or estate duty is a tax on the total market value of a person's assets (cash and non-liquid assets) at the time of his/her death. Estate Duty in Hong Kong has been abolished since February 2006.

Filing Personal Tax Return

Every taxpayer has to file annual tax returns with the Inland Revenue Department (IRD).

The year of assessment runs from April 1 through March 31 of the following year. IRD sends out individual tax returns by May 1. Tax returns normally have to be submitted within one month from the date of issue.

Note that even if you do not have any income to report, you still need to declare zero income in your tax form.

A married couple can elect to receive a joint assessment, if the single assessment based on their combined income results in a lesser tax liability.

With effect from 1 April 2019, 3 supplementary forms to Tax Return, being part of the return, should be filed together with the return.

If you are a sole-proprietor of a business, you can file the returns within 3 months from the date of issue. You can choose to file your returns online or by postal mail. After you have filed your returns, you will receive your 'Notice of Assessment' or tax bill from the Inland Revenue Department. The tax bill will indicate the amount of tax you are liable to pay for the given year of assessment. It will also state the provisional salaries tax payable for the succeeding year of assessment.

If you disagree with the tax bill, you need to inform the tax department within 30 days from the issue date of your tax bill and state your reasons for objection. Notwithstanding any notice of objection lodged by you, tax must be paid on or before the due date specified in the notice of assessment.

The Commissioner of Inland Revenue may impose penalties or issue an estimated assessment if there is a delay in filing the return.

An Attractive Relocation Destination

A well-regulated yet simple tax system and low personal income tax rates have increased Hong Kong's competitiveness in the region and it remains an attractive relocation destination for foreign professionals.

Moreover, unlike many western nations, Hong Kong has no capital gains tax - a policy that encourages investment by citizens and foreigners alike.

Looking for tax support?

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More questions? Let us guide you further

You may find these Hong Kong immigration and relocation guides also useful in helping you make your decision:

Looking for a service to help?

Get a quote now on the cost of Hong Kong employment visas from Hawksford. It's easy and quick. Let us help you get established in Hong Kong.

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In Hong Kong, personal tax is often referred to salary tax. This article provides you with an overview of the salary tax system in Hong Kong. You will learn about the salary tax rate, allowable deductions for employees, tax benefits for employers and requirements of filing tax returns.

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What is income tax?

Income tax is the most significant stream of revenue in the tax system, it consists of three main pillars:

Income tax is applied to an individual's taxable income and is paid on all forms of income. This includes wages from your job, profits from business and returns from investments. Income tax can also apply to assets such as when a house or shares are sold.

Taxpayers with two or more jobs or other taxable income sources should be aware that they may be caught in an unintentional tax trap as a result of the tax free threshold.

Income tax rates

Australia has a progressive tax system, which means that the higher your income, the more tax you pay.

You can earn up to $18,200 in a financial year and not pay tax. This is known as the tax-free threshold and after which, the tax rates kick in.

Tax rates for residents in 2017/18 include (Note: these rates do not include the Medicare levy):

The lowest rate is 19% and the highest rate is 47%, which is only charged on income over $180,000. Most Australians sit in the middle bracket.

You are also taxed on superannuation contributions and earnings, and there are several tax benefits to paying money into your fund.

Tax rates for foreign residents for 2017-18 are:

Working holidaymakers (visa types 417 and 462) pay 15% on all income up to $37,000 then resident rates on all income from $37,001 onwards

Lodging your return

Lodging your tax return can be done anytime after June 30 and the absolute deadline for self-lodgement is the 31 st October. Whilst there is the option to self lodge, it is best to go through a tax agent such as H&R Block, to ensure everything is filled out correctly and you receive the best return possible in a timely manner.

In order to ensure the lodgement process is as smooth as possible, make sure you have all your important documents together before coming in for your appointment or lodging online. Filing away important receipts, invoices and documents throughout the year will save you a lot of time when it comes to completing your return. It's also important to ensure all your details are up to date. If you've moved or changed your name, these details need to be updated with the ATO. Minor errors like these can hold your return up for weeks or even lead to fines.

If you're retired or have access to your super fund, it is important that you are fully aware of your tax obligations. People of different ages have different levels of obligations when it comes to tax on superannuation withdrawals.

Deductions

Tax deductions are expenses that you have incurred during the financial year for work purposes. Overall, tax deductions reduce taxable income and are often the reason why people get a tax refund.

Any money spent as part of your work is tax deductible. If you spent money on something to allow you to do your job you are entitled to claim that cost as a deduction. For example, travel expenses for work purposes or the cost of uniforms. If you use your personal laptop, desktop, tablet or phone for work, you can claim a deduction for work-related use of the device. Below are a list of tax tips to help you understand tax deductions:

It is important to remember to only claim what you're entitled to. Private expenses or any costs that were reimbursed by your employer cannot be claimed. Claiming what you're not entitled to can lead to fines and a stressful audit by the ATO.

If you're unsure of what you can and can't claim, watch this short video or contact your nearest H&R Block office for further information.

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Understanding the Australian Income Tax System | H&R Block Australia

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Income tax is the most significant stream of revenue in the tax system, it consists of three main pillars: Income tax is applied to an individual's taxable income and is paid on all forms of income. This includes wages from your job, profits from business and returns from investments.

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There's nothing quite like the excitement and pride of receiving your very first paycheck. You worked hard for a solid month, and here's your much-deserved compensation. But wait a second ... what's the story with this line that says "net pay?" That can't be your actual salary, could it? What happened to all of your money? By the time you get your paycheck, it's been cut up like a pizza, with several government agencies taking a piece of the pie. Exactly how much money is withheld from each check varies from person to person, company to company and state to state. However, almost every income earner has to pay federal income tax.

We generally don't think much about taxes except during the annual tax season. It's probably the most dreaded time of the year for millions of Americans, yet we circle it on our calendars, along with holidays and birthdays. But little joy is connected to April 15, the deadline for filing tax forms. (This deadline doesn't always fall on the 15th. In 2012, Tax Day was Tuesday, April 17 because the 15th was a Sunday and the 16th was a holiday in Washington, D.C. [source: Kaufman].)

The American tax system is a huge machine with a tax code that seems more complex than rocket science. In this article, we will examine how individual income taxes work, take a look at the history of income taxes in the United States and consider two alternative tax plans.

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If you've ever filled out a 1040, you know the U.S. tax system and the agency that keeps it going are complex and mystifying entities. But paying income tax is a fairly recent activity in America. Find out its history and some alternative proposals.

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Imagine, this tax day, that you had to explain the concept of how America taxes itself to a visitor from another planet. Picture, if you will, a conversation with modern-day alien Gulliver, who is exploring new words and asking questions about our civilization in order to tell wild tales to the folks back home.

The concept of taxes, of course, is pretty easy to explain. Except when you look at it too closely. Or have to explain it to our imaginary visitor from Mars. Here's my modest attempt at outlining the concept of taxes to an interplanetary Gulliver:

A "tax" is money that the government collects within its borders in order to pay for everything that government does. Today is the day when Americans are supposed to have sent in their income taxes. We work for money, or an "income," and the government takes a portion of this as a tax.

Our income tax is what is called a "progressive tax," which means that those who make more money pay a higher tax rate. If you make very little money, you pay no income tax at all. If you make a decent amount of money, you pay a fraction of it to the government. If you make a lot of money, the fraction you pay is theoretically higher. This system is designed this way because those who have enough money not to worry about putting food on the table each day can afford to pay more to the government.

That is the theory, at least.

All money you make during the year is considered "income," no matter how you make it. If you work at a job for wages, that is income. If you win the lottery, that is income. If you find a twenty-dollar bill on the street, you're supposed to declare it as income, too.

There is one exception to this, however -- if you buy and sell pieces of companies (called "stocks") and make a profit, this is called "capital gains" and not "income." This is how the very wealthy make a lot of their money, by what's called "investing" it. This is a more-advanced form of gambling than going to Las Vegas, basically. You take some of your money and you buy a stock. If the stock starts selling for more money, you can then sell it and make a profit. You are making a bet that the company will do better in the future. Sometimes you lose the bet, and you wind up losing money. Sometimes the bet pays off in a big way.

If you took a thousand dollars and successfully gambled it in a casino, and walked out with one hundred thousand dollars, you would have to pay income tax on $99,000 of it. If you took the same $1,000 and bought stocks with it, and then sold the stocks for $100,000, then the money you make is not considered income, but capital gains. Winning the money in Vegas means you have to pay the normal income tax rate on it, but winning the money on Wall Street means you will pay about half the income tax rate.

That's right -- half.

Now, if you work for a wage and you take the money you earn and go out and buy something with it (a beer, a car, whatever), you have to pay a "sales tax" on the purchase price. This tax varies depending on what you buy, and where you buy it. But when the wealthy buy and sell pieces of companies, they do not have to pay a tax on the purchase price. Why? I'm not sure, that's just the way it is set up.

Companies are taxed, too, but they are taxed differently than citizens. When a person makes money, they are taxed on a portion of the total income. There are ways that you can avoid some of these taxes, if you have enough money. If you buy a house, for instance, you don't have to pay income taxes on the interest you pay a bank on your mortgage. There are actually dozens of ways to lower your tax rate, but most of them are so obscure that very few people even know about them. But businesses are not taxed on income at all -- they're taxed only on "profit." Anything which is a "business expense" is not taxed at all. People aren't allowed to "write off" their expenses in this fashion, but businesses are. And there are thousands of ways businesses can claim that the money they make isn't really profit at all. This means that a corporation which brags on its annual report that they made billions of dollars in profit can make that profit disappear when filling out their tax form.

What this means is that people who earn wages pay a certain percentage of their income in taxes, but giant corporations pay little or no taxes at all. Every single year there are stories about companies which make tens of billions of dollars, but pay zero in taxes. Every single year.

The tax laws are written by what we call Congress -- the legislative branch of our government. The people in Congress get elected by the citizens. To get elected to Congress costs a lot of money, because campaigning isn't cheap. So they have to raise money to get elected. The money they raise comes from people who want Congress to do something for them. These people hire other people called "lobbyists" who bribe members of Congress with campaign funds. Well, we don't call it a "bribe" even though that's what it is, because it makes it sound unethical and dirty. It is unethical and dirty, but we all pretend that the money given to politicians has nothing to do with the way they vote -- on tax issues, for instance. I'm not sure why everyone pretends in this fashion, but we all do, for the most part.

Say you are a company that builds widgets. You join together with other widget-makers, and form a business group. You all pay money to this group, and the group takes that money and gives it to a bunch of lobbyists. These lobbyists take the money, and bribe as many members of Congress as possible. Then when the tax laws are drawn up, the politicians which you have bribed write into the tax code "widget makers don't have to pay taxes." Of course, this would be too obvious, so the way this gets written into the tax code takes eight hundred words of closely-packed text which never even mentions the word "widget" -- but defines the tax break in such a way that the only people who can claim it are you and your fellow widget-makers. Nobody else even notices those eight hundred words, so they don't complain about you getting such a sweet deal.

The more money you have to bribe politicians with, the better the tax break you can buy for yourself. Ordinary people who earn a wage don't make nearly enough money to buy such preferential treatment, of course. Only the wealthiest of private citizens, and large businesses, can afford this sort of thing. Citizens can form a large group in an effort to bribe their own politicians, but it takes a whole lot of them to balance the bribes which are already pouring in.

But, of course, we have a progressive tax system -- it says so right there on the label. Oh, except for another tax we call "Social Security." This is actually a "regressive tax" because the more money you make, the less you pay. Those who make very little money have to pay the full percentage. Those who make decent money also pay the full percentage. But when you make enough money, then you get to stop paying the tax after a certain point. This means that someone making a million dollars a year pays a tiny, tiny fraction of the percentage that almost everybody else has to pay. Why is this? I'm not sure, that's just the way it is.

So, to review: we have a progressive tax system, so that those who make the most money pay the highest percent in taxes. Except for those who make most of their money buying and selling stocks -- they pay half the percentage everyone else pays. Everyone pays sales taxes, except those buying and selling stocks, who pay no taxes at all on the transaction. Businesses are taxed differently than people, and are allowed to only pay taxes on their profits and not their incomes. Businesses are allowed to report profits to their stockholders, but then report a different number entirely to the government when filling out their taxes. Sometimes very large corporations pay absolutely no taxes at all. If they don't like the tax laws, wealthy people and businesses are allowed to bribe the people who write the laws to create "loopholes" written just for them, which always means they wind up paying lower taxes. Also, if you make enough money, you get to stop paying Social Security taxes after a certain point, even though everyone else pays the same percent.

It's really a very progressive system, isn't it? Well, that's what we all tell ourselves, at any rate. How do they do these things on your planet?
Chris Weigant blogs at: Follow Chris on Twitter: @ChrisWeigant

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A Beginner's Guide To America's Tax System

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Imagine, this tax day, that you had to explain the concept of how America taxes itself to a visitor from another planet. Picture, if you will, a conversation with modern-day alien Gulliver, who is exploring new words and asking questions about our civilization in order to tell wild tales to the folks back home.

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As an employee, you pay Income Tax and National Insurance on your wages through the PAYE system. It's important to check you have the right tax code and are paying the right amount.

Do you need to pay Income Tax and National Insurance?

You can earn a certain amount of income each year, called your Personal Allowance, before you need to pay any Income Tax.

In general, everyone gets the same Personal Allowance of £11,850 for the year 2018-19.

However, you might get less if your income is over £100,000 or if you owe tax from a previous tax year.

You might also get a larger Personal Allowance if you have overpaid tax from a previous tax year.

How much can you earn before you need to pay Income Tax?

In the UK, the tax system is based on marginal tax rates. That means it's worked out as a percentage of income you earn inside certain thresholds - you don't pay the same amount of tax on everything you earn.

As an employee:

you pay 0% on incomes up to £11,850*

then you pay 20% on anything you earn between £11,851 and £46,350

you'll pay 40% Income Tax on earnings between £46,351 to £150,000

if you earn £150,001 and over you pay 45% tax.

* This assumes you have the standard Personal Allowance of £11,850 which is the amount you can earn before paying tax. Your Personal Allowance might be higher, for example if you've claimed certain allowances or if you've paid too much tax. It could also be lower for example, if you earn over £100,000, the standard Personal Allowance of £11,850 is reduced by £1 for every £2 of income. Find out more about How Income Tax, National Insurance and the Personal Allowance work.
For example, if you earn £52,000 a year, you pay:

How much can you earn before you need to pay National Insurance?

As an employee:

For example, if you earn £1,000 a week, you pay:

If you live in Scotland, National Insurance rates are different. Find out more on our Scotland Income Tax and National Insurance page.

What's the difference between gross and net pay?

If you're an employee, the money you earn (your salary or hourly wage) is called your gross pay.

When deductions from gross pay like tax and National Insurance have been taken off, the amount you receive is called your net pay.

You can see what your gross pay was and how much has been taken off (if anything) on your payslip.

How is tax and National Insurance paid?

If your income is more than your Personal Allowance in a year, you have to pay tax.

In general your Personal Allowance is spread evenly across your pay packets for the year and your employer will take out tax before giving you your pay.

They know how much to take out through a system called PAYE (Pay As You Earn). If it turns out at the end of the year you have paid too much tax, you can get a refund; too little and you will have to pay extra.

Your employer will also make National Insurance deductions from your pay.

This is worked out on a weekly or monthly basis, or however frequently you get paid. Unless there has been a mistake, you cannot get back any of the National Insurance you pay, even if your earnings fall later in the year.

How PAYE works

When you start work, you'll either need to hand in a P45 form from your last job, or complete HMRC's new starter checklist, which you get from your employer.

These forms both tell HM Revenue & Customs (HMRC) you've started work and will be used to create a tax code.

Your tax code then tells your employer how much tax to take off your pay. The P46 form is no longer used.

PAYE might be used to collect tax not just on your earnings from this job but also on other income you have.

What is a tax code?

The amount of tax you pay depends on:

Different people have different tax codes, depending on their circumstances.

Every year, HMRC sends out a Coding Notice telling you what your tax code is and how much tax you've paid.

You can also find your tax code on your payslip. It's usually made up of a few numbers and a letter.

How is my tax code worked out?

Your tax code is normally the amount you can earn without paying tax, divided by 10, with a letter added.

For example:

Tax code: 1185L

1185 becomes £11,850 earned before tax.

My tax code has no number, or starts with D followed by a number

This is usually because you have more than one source of income.

Your Personal Allowance is used up on your main income source, and you pay tax on everything you earn from your second income source.

For example, you might work a main job during the day and do shifts in a pub or work in a factory in the evenings.

If you earn more than £11,850 a year in your main job, your second job will be taxed at the basic rate. This can also apply to pensions or money paid out by investments (dividends).

My tax code starts with K

This means you have tax from the past you still need to pay, or you get money or benefits that can't be taxed before you receive it, like a State Pension or company car.

From this, your employer can work out how much should be paid towards what you owe.

The amount you pay will never be more than half the amount you've earned or received during the pay period (whether that's monthly, weekly or another period).

Do you have the right tax code?

Sometimes your tax code isn't right for your circumstances.

For example, if you started work recently and your correct tax code hasn't been worked out before your first payday, you might be on an 'emergency tax code'.

This means you might not be given the right Personal Allowance for you.

For 2018-19, the emergency tax codes are:

If your tax code is one of these, HMRC will automatically update it, but it might mean that for one or two months your pay won't be the same, so be careful with your budgeting.

How do I check my tax code?

To make sure you're on the right tax code, check your code matches the Personal Allowance you should be getting.

What do I do if I think my tax code is wrong?

If you think your tax code is wrong, or if you're in any doubt, contact HMRC.

It's important you give HMRC all the information they ask for so you don't end up on the wrong tax code and pay too much or too little tax.

If you think you've paid too much tax

It's worth checking how much tax you've paid on your wages.

Depending on your circumstances, you might be able to ask for a refund using a form, or you might need to contact HMRC directly.

If you think you haven't paid enough tax

If you think you've underpaid tax, then you might have to complete a tax return.

If this is the case, normal self-assessment time limits apply.

To pay an amount up to £3,000 through an adjustment to your tax code for the following year, you should file a return by 31 December following the end of tax year.

Otherwise, tax still due for the last tax year must be paid by 31 January following the end of the tax year in which the income arose.

If you think you haven't paid enough tax, contact HMRC.

You might be asked to complete a tax return. Be aware if you don't do this, you will normally have to pay penalties and interest once the underpayment does come to light.

Tips and bonuses

If you get money through your job that's not part of your usual wages, like an annual bonus or tips from customers, you'll have to pay tax on it, and usually National Insurance too.

Your annual bonus, if you get one, is treated as if it's part of your normal wages. You'll pay tax and National Insurance on it through PAYE, in the usual way.

If you get cash tips direct from customers or through a 'tronc' system (where tips are pooled and shared between staff members of the pool), you also need to pay tax on them, but not National Insurance, provided the amount you get in tips does not involve your employer. It's your responsibility to tell HMRC about these tips. They will then give you a new tax code estimating how much you get in tips each pay period, and taxes you on that amount. Find out more about troncs from HMRC (PDF).

If a customer gives you a tip via their bank card when paying for a meal or service, and your employer decides whether to share it with you, they are responsible for sorting out the tax and National Insurance. If the employer passes such payments to a tronc, then the rules above apply and no National Insurance is due.

A service charge is not the same thing as a tip, because the customer doesn't choose to pay it. A tip is a payment that's given freely.

Benefits in kind

Sometimes your employer will offer benefits like a company car or health insurance as part of your remuneration package.

These are known as 'benefits in kind'.

You might need to pay tax on the value of these benefits.

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How much Income Tax and National Insurance you should pay

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As an employee, you pay Income Tax and National Insurance on your wages through the PAYE system. It's important to check you have the right tax code and are paying the right amount. You can earn a certain amount of income each year, called your Personal Allowance, before you need to pay any Income Tax.

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Savings is not difficult when it is done systematically. After proper budgeting, all the one has to do is identify financial goals and put their financial resources to optimal use. One can divert their financial resources (savings) towards investing. Investing in a goal will help individuals achieve them easily. Small and regular savings will help in realizing life goals without much stress. Systematic investment plans will enable individuals to save a fixed amount regularly every month. Also, the key to generating significant returns is to have a long term investment horizon.

Therefore, one should have a good strategy for identifying financial goals, segregating them as short, medium and long term goals and investing. Also, it is important to be patient with investments and not get panicked with market volatility. Furthermore, one can consult a financial advisor for planning their investments.

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One should start tracking their income and expenses on a monthly basis. This will help in segregating necessary and unnecessary expenses.

The budgeting process should include:

Income (payslips, investments etc.)

Fixed expenses (bills, rent, loan payments, etc.)

Other expenses (shopping, travel, etc.)

Savings

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Having a good credit score will help in getting the best interest rates on credit cards and loans. Therefore, aim to maintain a good score that will help in the case of borrowings.

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One has to ensure they are paying bills promptly. Choose auto debit options for recurring bills from the bank account. Set up payment reminders to stay on top of monthly bill payments. Paying bills should not be postponed or neglected. Hence one needs to make it as a priority in their budgeting.

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Instead of holding the money idle in a bank account, one can divert it to financial instruments. Investing is all about generating and growing wealth to enjoy a secure and happy future. It is all about putting money in an avenue that will help in generating significant returns over time. Investments will help in generating additional monthly income and significant returns.

One can also achieve their financial goals at the same time allocate funds towards retirement saving. Some of the widely used investment options are equities, debt instruments, mutual funds, real estate, and gold.

Therefore, becoming financially literate will help in:

Building wealth

Protecting oneself in case of emergencies

Achieving goals

Securing one’s family future

Retirement planning

Lead a stress free life

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Saving ensures financial wellness, a secure present and an uncompromised future. One can build wealth in the long term through proper financial planning.  Keeping a tab on one’s spending habits will help in saving money. Therefore, through savings, one can easily achieve the following:

Achieve important financial goals. For example, full payment of a home loan, kid’s education, and retirement savings.

Create an emergency fund. An emergency fund acts as a cushion during unexpected life events. The fund should have at least six months worth one’s income.

Inculcate financial discipline. Through saving money regularly, one can achieve financial discipline and excel in their life.

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Debt is nothing but one’s borrowing e.g. spending money that isn’t theirs. For example, if an individual borrows money from the bank or uses a credit card or takes a short term loan. All these become part of the debt. Mostly, debt is perceived in a negative aspect. Which makes understanding debt very important.

However, not everyone can buy a house or car or pay tuition fees with cash. In such scenarios borrowing or taking a loan is the only way out. But the most important thing is to differentiate between good debt and bad debt. Also, one should always aim to avoid bad debt as much as possible. This is the basics of debt management. Good debt is borrowing money for things that are necessary for making a living. For example, buying a home or paying education expenses. On the other hand, bad debt is borrowing money for unnecessary expenses. For example, using a credit card to buy expensive clothes or electronic gadgets, etc.

Therefore, being able to differentiate between necessary and unnecessary expenses will help an individual from not drowning in heavy debts.

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Financial literacy is the ability to manage one’s money. The goal of financial literacy is to help in understanding financial concepts that will help them to manage their money better. It is a life skill that one must grasp for good financial wellbeing. Financial literacy includes budgeting, investing, insurance, and loans and interest. In this padlet, we have covered the importance of financial literacy and how can one improve their financial literacy skills.

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Manage debt by reducing spending and increasing repayments. Have a debt reduction plan that will help in reducing the liability. For example, paying off loans with high interest rates first.