4 Things You Need to Know About Personal Finance | Managing Your Money Series

Summary.

To help you navigate your finances, we put together a list of four terms surrounding money management, along with what they mean and tips on how to put them into action.

Moonlighting: To have a second employment, potentially without the knowledge of your full-time employer.

Emergency fund: A sum of money that you set aside for unplanned or unexpected events.

Equity compensation: A non-cash reward to workers through restricted shares and stock options.

Investment portfolio: Refers to all of the different types of financial investments you hold such as bonds, stocks, and real estate.

Okay, let’s be honest. Talking about money may seem unpleasant, intimidating, and confused. But no matter how you may feel about money, it’s crucial to keep in charge of your own finances.

To help you manage it all, we’ve produced a list of four financial phrases, along with what they imply and recommendations on how to put them into action.

Moonlighting

Definition: To have a second employment, maybe without the knowledge of your full-time employer. It often refers to work done beyond the 9-to-5 office hours. Other similar terms include “side gig” or “side hustle.”

How to apply this: “My employer has a ‘no moonlighting’ policy, so sadly, freelance employment is out of the question for me.”

In action: According to Natasha D’Souza in her essay, “I Built My Side Hustle During a Layoff (and You May Too),” moonlighting can be a vital component of achieving financial stability for oneself. Having numerous income-generating sources means that you always have money flowing in (even if you lose one stream) (even if you lose one stream).

If you are interested in moonlighting or building a side hustle, you need to stand out to attract the best opportunities and pay.

This will entail creating a specialized skill set – one that is coveted and can’t be simply copied.

Think about your unique strengths and areas of interest, and brainstorm how you can combine them. Don’t just focus on what you’re good at.

Ask yourself: What am I actually enthusiastic about? What would be worth investing time in outside of my regular work?

Passion often gives us a deeper perspective into our interests — not to mention greater endurance when it comes to getting the work done.

This combo will help differentiate you from the throng.

Emergency fund

Definition: A amount of money that you put away for unforeseen or unexpected occurrences like sickness or accident, loss of a family member or friend, or layoffs.

How to apply this: “The epidemic has made me understand how crucial it is to create an emergency fund.”

In action: How do you start building an emergency fund? In her article, “3 Smart Moves to Make with Your First Paycheck,” financial coach Alisa Barcan suggests a few approaches:

Set aside a small portion of your paycheck.

Your goal should be to build a fund that covers three to six months of your expenditure.

Even saving $100 a month for emergencies may help you develop a cushion of $1,200 in one year.

Avoid taking money from your savings account.

Instead, consider creating a new account and set up automatic payments to build up your fund over time.

Review and reset your financial goals based on your changing circumstances.

There may be periods when you are able to contribute more to your fund, and others when you need to draw back and restrict your contributions. (That’s alright.)

Equity compensation

Definition: Also known as stock compensation or share-based remuneration, it is a non-cash distribution to workers through restricted shares and stock options. It allows employees to hold partial ownership of the business and its profits.

How to use this: “Startups that can’t afford to put out huge salaries often include some equity compensation to make their offers more competitive.”

In action: In his essay, “Everything You Need to Know About Stock Options and RSUs,” financial planner Daniel Lee explains out two forms of equity compensation: Stock options and restricted stock units (RSUs) (RSUs).

Lee explains that stock options give you the ability to purchase shares in your company’s stock at a predetermined price, also known as a strike price, for a limited number of years (usually 10).

Ideally, if your company is performing well, the strike price of your stocks will be lower than its fair market value by the time your options vest.

This implies you may purchase the stocks you were issued at the lower price and sell them at a greater value (and gain $$$).

At the same time, if your company stock performs poorly and the price never increases above your strike price, your options can expire as worthless.

Like stock options, RSUs vest over time – the difference is that you don’t have to purchase them.

Once your RSUs vest, they are treated the same as if you had bought your company’s shares in the open market.

You should negotiate equity compensation, along with salary, when considering a job offer.

Investment portfolio

Definition: All of the numerous sorts of financial assets you own such as bonds, stocks, and real estate.

How to use this: “A well-constructed portfolio should include several different types of investments (such as stocks, bonds, etc.) that do not move in tandem.

This minimizes volatility of a portfolio without necessarily diminishing its return potential.”

In action: In this lesson on making wise investments, financial expert Matthew Blume demonstrates that diversifying your investment portfolio is key to generating wealth because it helps you to manage risk more efficiently.

Stocks are one of the most talked-about investments, but you wouldn’t want to tie your entire financial future to the success of a single company — or even any broader market.

Blume says that, depending on your financial circumstances and risk tolerance, you might want to consider investing in private equity, venture capital, precious metals, commodities, and real estate, all of which are available on the market.

Because these assets depend on distinct underlying forces, they may be rising up while more conventional investments, like equities, are going down.

Happy Investing! 😉