Personal Finance for Beginners: 6 Steps to Budgetting & Investing (with smart Excel Tools)

1. Intro & Structure: Hello. My name is Marius, and on a daily basis, I work as a financial consultant and analyst, and I work with private financing and investments. I've made this course because I want to increase the focus on personal finance. Therefore, this course turns financial theories into simple, powerful actions that you could take today. This class is structured around six lessons that takes you from awareness to action. You start by reflecting on your money habits and mindset. Then build a complete personal budget using a downloadable template. Finally, you'll learn the basics of investing and how to make smarter long term financial choices. The class is designed for anyone who wants to feel more confident and in control of their finances and no prior experience or tools are required. By the end, you have your own working budget and a clear understanding of how to grow your wealth and make better financial decisions. The first learning goal focuses on why we spend as we spend. What is the psychology or the behavioral finances behind this? This is meant to identify your negative habits in order for you to work with them and eliminate them. Secondly, this will lead to you being able to cut costs or find air in your budget to put aside into saving and later on investing. We will do that in the third lesson where we will build your personalized budget and try to see what happens when you cut costs one place in order to invest it. What happens in the next five year, ten year, 20 year period. Lastly, we'll look into the general of investing in stocks. We'll look into the benefit, the cons, the risks, how to diversify, how to analyze a company, what are index funds, What are ETFs? Why are they grade and so on. And in the very end, we'll set the whole thing in perspective and open the discussion of balance in savings on one hand and life quality on the other hand. Let's do it. 2. Disclaimer: And just a short disclaimer, this course draws on general financial and investment theories from books, et cetera, meaning that there's no one size fits all. Therefore, this is for educational purposes, and you should always seek advice from a licensed professional. 3. The psychology behind money habits: Lesson one, the psychology behind money habits. Everywhere you go on Internet, there are sales, summer sales, winter sales, pop up, Cyber Monday, whatever. This is a constructed market scheme to make you buy more. The new currency of this age is not just your money, it's also your time and your attention. It's you scrolling through Instagram, Facebook, watching YouTube videos or whatever, there's an ad which is tailored to target you specifically. And visual ads are not everything. You're also being pressured subconsciously by influences, by your peers. This pressures most people into buying something which is not aligned with what they need or want in their life. And that is what this lesson is about, trying to figure out what can we cut out of your budget? What is unnecessary. And that's why we start with the brain. Caneman explains how we think fast or slow with the systems. Simon explains why we don't always think rationally with these mental limitations. And Luinstein elaborates on these states that we can be in emotionally. Herbert Simon's theory of bounded reality says, we don't always pick the best choice. We pick the one that feels good enough. When we're tired or overwhelmed, we take shortcuts, and that's why you grab something on sale without even asking, Do I really need this? Simon argues that humans are not fully rational, and that is because we have at all times limited information, limited time, and limited cognitive capacity. Meaning, instead of finding the best solution and maximizing or finding the optimal, most efficient solution, we often settle for the solution, which is good enough compared to what we think at that time. Another take on the brain is that from Daniel Kaniman who explains how this happens, as well. He talks about two systems. System one is fast, emotional, and intuitive. It's for pattern recognition, it's for recognizing people on the street, it's for making quick decisions. This is the system that takes action now. There's system two, which is slow, logical and deliberate. This is the system we use to make conscious decisions, solve complex problems, and be strategical and rational. This is also the system which requires the most amount of effort, meaning that the longer you use system two, the worse outputs you get. So at one point, the more drained you get, the easier it is for system two to switch over to system one and make these quick intuitive decisions instead. And that is also why when system two is up and running. We have to take advantage of it. And thirdly, we have George Linstein who shows how emotion, especially in hot states can override our logic. For example, when we are hungry, angry, craving, stress or afraid, our decision shift. The main idea here is that emotional states distorts our reasoning and often leads to irrational choices. And that also happens when we are extremely happy. When we're extremely happy and excited, we will also spontaneously buy this new bike or we will buy the airplane tickets for dream vacation or whatever. And I'm not saying that this is a bad thing. I'm just saying the moment when we know that we are affected by some kind of emotion, we should stop up for a second and think, Do we really need this? Is this the best option? Can we do it in another way to build some kind of habit of, can I get to the point that I need to get to better or more efficient? And as you get that into a habit of yours, you will start to make better decisions. And with that said, our financial behavior is not just our current mindset, but it's also shaped by our past experiences. Brad Klunz elaborates on this with his theory around money scripts. From our childhood, we have formed beliefs, deep beliefs which run to the background of our subconscious mind without us realizing. For example, if we were told that money does not grow on trees as an example as children, we would be more hesitant to spend our money even in our adult life. Whereas, if we were told and showed by our parents that money comes and goes, it's supposed to be enjoyed. Let's splurge on this vacation. Let's buy big presents for Christmas. Then now in our life, when we get children or when we have a really good friend or whatever, we are more likely to spend money as we were told when we were children. Again, there's no right or wrong in how we were raised, but it's important for us to have in mind how we were programmed and how our subconscious mind works when we spend money. Just came up with two examples, but try to review your own life and your own spending habits and try to see why you do as you do. At least give it a try to think about if there's something that you were taught as a kid, which you have brought into your adult life. The next theory I want to focus on is from Hirsch Shiffrin who talks about behavior life cycle theory. And this is the whole subject of that we as human beings, are wired in a way that we value something right now more than in two days or in one month or two months. Is great at the time where food were scarce and we were hunters and gatherers. This was a survival mechanism for our brain to make sure that our body got calories right away all the time. And this instinct is also what's been used so commonly against ourselves with marketing and sales because they promised this new shiny object right now at a discounted price. This is marketing one on one, scarcity, push pull factors. This is bottline manipulation slash notching. And again, it's nice being tagleed by ads if you need this product. But have in mind that the process from getting you on the landing page and you buying has been tailored with precision. This leads to the third theory from Amos Trotsky, namely anchoring buys. And this theory describes that the first price that we see on a product becomes our reference point. And I don't think that it's a coincidence when something is on sale, they will always leave in the original price crossed out, and then the new price. In one instance, our perception of value is distorted. And suddenly this new price seems like a great offer and the time are taking down, increasing scarcity, we must buy now. This is used along with the other theories a lot in marketing and pricing. Up until now, we've been talking about the external factors. We've talked about the internal factors. I wanted to conclude this lesson with a theory from Hal Hirschfeld, as this theory describes that many people fail to save because their future self seems distant. And this is the lack of why of why should I save? Why should I enjoy my time now? Why should I spend on what I've always dreamed of doing? And that's what we need a why. And here the theory describes that you could write a letter to your future self. You could build a vision board or as we will do later on, a budget which shows you the immediate effect right now of saving and what it does in the future. Importance here is that we get some connection to the future in order to push away these short term gains or short term excitements, in order for you to get ahead of saving money. And as I talked about earlier, it is about a balance between life quality and saving for money to be invested and grow. But in order for you to willingly, in the first place, put aside money to invest, is reliant on your ability to look into the future and see possibilities of building another life. And this is also what Elizabeth Dunn and Michael Noton touches on with the quote, W this money that I'm about to spend on short term satisfaction, be better spent on investing in the life I really want. I 4. Take control of your money habits: So welcome to Lesson two. So up until now, we spent the time looking at why we do as we do, what is the pitfalls of our brain and why we're making bad money decisions. In this lesson, the key takeaway is that we take control of our money by building habits. And this is paying yourself first, living below your means, giving every dollar a job, as well as building better habits so first up to bridge the gap between Lesson one and Lesson two, how do we use the insights of Lesson one to change the way that we spend? As a talked about, we are constantly being pushed around, being distracted, and our greatest resource here is our calm logic thinking, namely system two of Kana we cannot always rely on this system, because as we also talked about, there is a dimension in return. At some point, you're getting exhausted of constantly trying to outweigh the options and strategizing and trying to lay a plan. And this is where habits or daily systems, daily actions is very important. But the main essence here is that you create a way of doing things that you don't have to think too much about afterwards. So you just do them. And this example is to set boundaries. You always decide at the start of the month how much is going towards the bills, how much is going towards the savings, how much is going towards fun money or eating out. What is your limits? And this will also make sense a little bit later when we the budget in Listen three. But for now, let's just stick to the idea of setting boundaries. Check your bank account every day at the end of the day, see where you spend money, get a feeling of where your money goes. It's not for you to feel bad about your spendings, but it's about building awareness and not being afraid to look at your account every once in a while. And thirdly, we wire your actions. And for example, use nudging against yourself. So make it easy to make good financial decisions and make it difficult to make bad financial decisions. Sounds simple, but this could, for example, be to have two accounts in your bank. One with the money you have set aside after bills and savings and whatever, and the other one with your savings. This forces you to only spend the amount on the first account. And if you were to need money additional to what you have set aside, you'd have to physically go into your account and transfer from your savings to the other account. A hurdle making your brain stop up for a second and thinking, Okay, I'm actually betraying my own plan right here. And then you get a moment to realize the savings which I'm about to transfer to buy something. Is that really worth it? And this is on the contrary of having everything on one account and you just spending and thinking of, Okay, I've set this amount aside, but let's see at the end of the month. Another habit could be that you set a goal for yourself to only buy groceries on one day of the week. Then you have to buy for the whole week in one trip. This forces you to make a plan of what you want to buy. It forces you to reflect on the amount of total money you spend and also to figure out the smartest way to do so. And this applies to a lot of situations. The main point here is that you take time out to be logical, to use system two, to be logical, strategic, you set up boundaries. So that throughout the weeks, throughout the months or whatever, you don't have to think about it. You just have to do what you set out to do. Now we'll take inspiration of some of the books that I've quoted, for example, the richest man in Babylon Tiny habits, the Barefoot investor, Rich Dad Poor Dad, and so on. And we'll start out with paying yourself first. So what does paying yourself first mean? It means that you focus on your goals first and putting yourself first in line and then reordering all the priorities after you so afterwards. And this is, for example, prioritizing setting aside 10% of your income into savings. And by doing so, you take the first 10%, no matter what, of your pay and put it into savings. Then all other costs come second and you make sure that you take certain steps towards your goal. And this is also to flip the script of many people as they will get their paycheck, then they will first cover all bills, then they'll cover all the expenses. And then at the very end, they'll see, Okay, how much do I have in savings? At every step of the way, there's a huge possibility of you not setting a question mark of that cost. Whereas if you turn it around and take 10% into savings, every cost from here on, you have to prioritize and say, Okay, I have this fixed amount of money. I have 90% left of my pay. Does that cover all my cost or no? And that makes you prioritize. Okay, do I really need this Netflix? Do we really need this cost or can we cut it can we reduce it? Is there some way of altering these 90% and not the 10%. And as mentioned, it builds strong habits, it prevents overspending and ensures that your future is prioritized before the lifestyle. Also, make it automatic. Make it so that the first 10% is deducted as soon as it hits your account. There's an automatic transfer to a different account, which you do not see, or it would take you some effort to look into it to see the numbers. By that, you remove the workload, you also make it easy for you to make the best financial choice. And you can soon start using some of this air in your budget, which you have created by taking out cost and increasing savings. Take some of this and start investing. And we'll get to that later, more hands on in Lesson three. Another habit from one of my favorite financial books, the richest man in Babylon, says, live below your means. And there's a quote from the book that says, What each of us calls our necessary expenses will always grow to equal our income unless we protest to the contrary. And this is the typical trap when you get a little bit more you simply just start upgrading your life, spending more. And if this happen and as soon as your income increases, your cost increases the same, we don't really go anywhere. There's nothing aside to building assets or growing your money or making your money grow for you. The book, the Million A Next Door, also put emphasis on this that you have to spend less than you earn consistently, and this is the foundation of financial stability and long term wealth. And this is exactly because you use some of this air, some of these savings to build assets, to invest in funds to invest to some point later on in life, have these assets pay you back in dividends or capital gains or whatever for you to use that to upgrade your life and not simply the earnings of your income. The main point here is about wealth isn't your income. It's about what you keep and can keep on building with. And this leads us on to the next habit, which is giving every dollar a job. Here is a quote from You need a budget. You're not deciding what to do with your money. After it's gone, you're deciding before. And this again is about making a plan, aligning beforehand your spending with your priorities and making sure that you take control of your money or else it will take control of you. And this is also building on the concept of if you make a plan first and try to divide your payment into different buckets of this is cost, This is saving for myself, emergency funds. This is fund money. This is for investments and so on, you had a plan starting out, and also you have something to look back on and say, Okay, I didn't succeed with this plan, but why did that happen? Which cost got out of line? Were you too optimistic of how much you could save? It allows you to reflect, and it also allows you to go back and really pinpoint where things went wrong. So in total, managing your spending habits, not too much about math. It's more about behavior. It's about your daily choices and systems and you actively making a plan. It's about being aware both of your emotions and your habits, but also checking in on your account on a daily basis. It's about recognizing tricks and replacing these mindless purchases with intentional decisions and making the choice of a mindset where you create and you stack these habits on top of each other over decades. And it's about designing an environment which fosters better habits and better choices in general. Doing this, you will consistently be able to save more money, which can be invested on your route to being more financially free. 5. Building your budget (download): So welcome to the third lesson of this course where we will start hands on building your budget. And this will be done by looking at your finances. Head to the course material and open the excel sheet named personal finance. But this exercise is beneficial to have the following information prepared, an overview of your monthly expenses, your total pension savings, the value of your stock portfolio, outstanding debt, and interest rates on your loans, and also the current income tax rate and the threshold for the top tax bracket. And you can look this up online. When you open the personal finance spreadsheet, it should look something like this. And as you'll see, there's an input page, a graph, a private budget, and three loans. We're only going to look at the input page, and this is where everything is going to happen. And I've graded these out in order for you not to make any adjustments directly in the formulas. Although we'll get to that later. For now, we start at the top. You should put in the start year that you would like to start in. Also just put January if you're starting in January. This doesn't matter. It just has to be the year that you're starting in. This although has to be the month. So if you were to start, for example, in February, you would write it like this or in March or whatever. And of course, this will be in your own language as you open Excel. For simplicity, I will just start with January. Then you can name your budget, and you can put in the currency, and also we'll put in an inflation rate. And this is important to forecast both expenses and your income. And for the numbers you see here, it's just an example. I've just put something in for income and rent and expenses and so on. And this here is, of course, your monthly income, monthly pension. This is your monthly cost. Everything is monthly except tax deduction per year. So again, start with the currency, put in your income. We have the pension contribution from employer. You have the pension contribution from yourself. You have variable income, you have benefits and other income. You can just change the names here if you want to and write something specific, just as side hustle or something. Maybe you rent your car, rent rent of car, et cetera, and just write in your numbers. The only thing important here is that this is for income, and this is for benefits, as there is a tax calculation running behind this one. Once you have inputted your income, we get down to your cost. You'll put in your rent, heating water, power, Internet insurances, if you have those, streaming subscriptions, music, fitness, everything you have you can put in here. And in later versions, if needed, I can add more of these. But for now, just sum it up. The only thing important here is that you put in minus when you do an input. So if you were to put in, let's say, the same without a minus, it will tell you, but just be aware of this. Also, you'll see already that some of these light up red, and this means that this is your third biggest expenses. Again, you can change your name of any of these, and they will change throughout the whole Excel sheet, and it's also possible to change later on. Then we have the tax. You have your personal tax rate, additional tax rate, the limit for top taxation, meaning that every dollar earned beyond this point is taxed differently. But differently, I mean by the top taxation rate. In my country, this is a super clear cut. So if you were to earn above a certain amount of money, you pay an extra fixed percentage. But in some countries, this all is just calculated into your personal tax rate as one percentage number, so be mindful of that. For now, if you're unsure and you don't know what to put in, just leave this at a point where it's way higher than your income before tax. That means it won't trigger this effect, tax wise. And a little disclaimer for especially this part of the model is that this is estimates, and this is mostly to get some kind of tax in the model and not as a clear advice. And that, of course, goes for a lot of the model, but let's stick to it. Just under, you have the tax deduction per year. This is typically also a fixed amount, and you should be able to look this up in your country or county or whatever. Then you have your tax deduction on interest rate, which later on calculates this number here, which is the tax deduction on interest rate. So in amount instead of a percentage, and this will make sense a little bit later when we fill out the loans. Then I left this cell for other tax deductions, which can differ from each individual. And then we have the tax on capital gains in percentage. And then, of course, we have the cost deductible in pay before tax. I think in most situations, you will know better than me which cost you have already that is deductible in tax. Then up here, we have the loans. We have loans A, B, and C. And this, of course, refers to these three slides or sections of the model, where we have the amount, we have the interest, we have the margin, we have the loan terms, and so on. So here, I've put in $200,000 with interest rate of 4%, no margin. We'll just put 1%. It's a variable loan payments per year, however you negotiated it. Normally I would just leave it at a full, so paid quarterly. And then, of course, we have repayment in years. How many years? I've just left it at 30. And then here, if you have managed to negotiate with the bank, you might have a non amortization period. Meaning, of course, a period where you only pay interest. And here you should put the date of when you start paying these amortizations. Then over here, I've put a commission fee to the bank, establishing fee, loan processing fee, registration fee, stamp duty, whatever they call it, made some sales for you to input the cost. And have in mind here, you have to put in the amount in a positive amount and not a negative amount, as we saw over here. And this, of course, is a percentage. And if we were to go over to this slide, you'll see that the amount is here, the interest rate is here, the margin is here, loan term. This, although number of installments per year is at 12 and you shouldn't change that for the model to work probably. If you go back to the input page, if you scroll a little bit more down, you can now see that all your cost from up here is listed in this pie chart. And you can see a huge chunk of that is your rent. This is just a great overview for you to visually get an overview of where you spend your money and where you can try to cut cost a little bit. For example, this great one here is groceries. See this one, work lunch and activities. And, of course, it will look way different when you input your own personal numbers here and change the names and whatever. And here on the right side, you will see what's called a waterfall chart, and to give it a little bit of explanation, have here your income as a revenue stream, then you have your tax here as a cost of 848. And this, of course, is your income deducted what you have put into your pension fund, and also average throughout the year. And you might ask, why is this average out on a monthly basis? And that is because some of the costs that you pay are paid on a quarterly basis, for example, the loan, and that's why we take the whole year into account, divide it by 12, and then average it out. So this is an average monthly income, as well as this is an average tax paid, your average expenses per month and also the average cost of loan interest per month. Even though this one is only paid quarterly. We do not pay amortization. We won't start paying amortizations until 1 July 2030. Just for this example, we can change it to something closer to this date. Let's just say here. And you will see here that you also pay an amortization here. So, meaning that now we have input all this data, you have this beautiful pie chart where you can see where you spend most amount of money. You can see maybe already where you can cut things out, and you can see exactly how much you should have left every month. Or not exactly, because as you remember, this is a average monthly cash flow, but it shouldn't be too far off this number. And this is also the number I check the most. When I go through my personal finances, I would check, once everything is paid in a month, did I really have this number left on my account? And I really focus in and zoom in and try to really figure out what the reason is behind that I didn't have this number, since I already thoroughly went through every cost and every income of my budget. So your first focus should be to look at this number and use it as a kind of reality check of, Okay, am I really doing what I say I'm doing? But this is also now the fun part because that means that you have paid for everything, all your cost, and now you have money left to invest. And that's where we scroll up a little bit. So for now, we have to put in a guess on our yearly ROI, and this is, of course, return on investment. But the savings, it's kind of easy. And if you log onto your bank, this is stated on your account, and this will normally be a number 0-1% on your normal savings account. You might have a special account, which allows for something above 1%. That's great for you. Just put it in here. For now, I'll just go with 0.5%. We have the pensions. The typical pension fund will invest in indexes or ETFs or the market. So for now, I've just put in these 8%. To be 100% accurate, you would also had to put in the cost of the managing your portfolio. So let's say they had a yearly cost of 1%, then you would have to deduct it from this return. There we go. And of course, 1% is on the high end of the scale. But for now, I'll just keep it at 7% for simplicity. Then we have our stocks or in this case, our ETFs and funds. These again, follow the market, although with quite a lower cost of managing, let's say the ETF has a cost of 0.05% and the index one is a little bit higher of 0.015%. Then I have some growth stocks, and having read through a lot of analysis of the stock, I expect a return of 10% per year, for example. Then we have the emergency fund, which again just has the same percentage of our savings account and, of course, our house, which for simplicity, I've just put the appraisal of the house or the gain and value of the house per year, the same as the inflation. But this is at the low end of the scale and somewhat conservative for some houses, as there's also a demand increasing, for example, if you live in the city, and you should also take that into account. But for now, let's put it at 3%. But for this number, you could talk to your real estate agent and see what their expectations are for growth in the area around. It also goes for these pension funds. For now, we just put 1% in, but you can of course contact your pension and ask them what is the specific amount? And you can just change here accordingly. Now that we have our yearly ROI, it is time to put in the monthly investments. And for example, I will put $100 in savings. Here, in these pension funds, you are already adding to the pension via contribution in your pay, and that is also why this number here, 5820, is not the same as this. So although you do not insert anything here, these numbers will, of course, grow nonetheless. Then I'll put 400 in Jevs, 300 in funds box sample. I'll put 100 into these more risky stocks, and then I'll put the rest in emergency funds. And that is, of course, because I want to grow this a little bit, as this right now is at 11,900, which is a little bit below the two months of income before tax, which is the guided amount to have in an emergency fund. And actually, I'm growing this number every month. With $157, meaning that in the end of 2026, I should have a little over 13,000. So now you can see that I started with the 1057 of average disposable income before investing, and now my average disposable income after investing is zero. And that is, of course, because all these numbers here, sums up to 1057. And if we go down to our waterfall graph here, you can now see that we have the input, the tax, the cost, the loans, the loan interest, loan amortization. Now we have savings of 100 and our investments of 957 and a cash leftover of zero. And this means that we have successfully completed the first year meaning that we have accounted for all costs and all investments, and this allows us to forecast. And the model is made so that by just filling out this one year, we can now forecast for 20 years. And I'll quickly show you how that works because this is the year of 2025. If we go a little bit to the right, we'll see that this is now the year of 2026. Of course, when you get to it, you can fill it out. But for now you can see that it has just taken all your numbers which you put in the last year and just forecasted by the inflation rate. And under the unlikely assumption that your income doesn't change by more than 3%, your rent doesn't change, or you don't get any other cost prior to last year. This is the baseline of the model and how it works. And if we go to the right again, you'll see the same will happen in 2027, the same will happen in 2028, 2029, and so on. And if you go back to 2026 here and go down a little bit, the biggest difference here is that now your savings has grown throughout the year with both the interest rate but also your monthly investments, which you made in 2025. Your pension has grown. The funds, ETFs, and stocks has grown by this rate, and also the amount which you put in last year. This is the monthly investments for 2026, based on, again, what you did last year, and then accounted for the inflation rate. And now these numbers are grade out, and that will continue throughout the years, as we will only change the monthly investments, and the model will do the rest. And you can also see here that your house has increased. Emergency funds has increased, and so on. And if you go down to the monthly cash flow, you see now your income is increased, also your taxes, your cost, your loan interest, and loan amortization, this should be about the same the amount you put in savings, your investments. And actually, now you have a little bit more cash leftover, which we can go up here now and invest. Let's say we put it in funds, zero plus 22. We have a zero here now, and now 2026 is done. And of course, that again is under the assumption that your income hasn't changed and none of your cost changed with more than the interest rate. Let's say you managed to get a raise of $100 per month or $1,200 per year. After tax and pension, that is an additional disposable income of 78. So we can add that to, let's say, the stocks. And this is the methodology. So you have done most of the work in the first year, and now it's all about making small changes. You can also see now that these are grade out, meaning that this is the amount you have left on your loan, and through the past year, you've already paid off around $3,000. So now you have spent a lot of energy putting in all your numbers, making some thoughts about what to invest, what's your ROI, what's your taxes. And you piled up all this information in order to forecast into 2026, 2027, and so on. And this is where we go into this tab here called Grab Net Worth. And here I have made a visualization of your budget, and this one is the two year forecast of your assets, your net worth and your total loans. These orange boxes here is the total loans. And if you deduct your total assets with your total liabilities or your total loans, you'll get your total net worth. And you can see here if you start out in January, you have total assets amounting to 355,000. If you go to January of 2026, so one year later, you'll see already that you have assets of 382. If you do the same for the loan, you start out with 200,000 in the beginning of 2025. And at the start of 2026, you have paid off these 3,000, and you have a net worth amounting to 185,000. And if we go to the end of 2027, you'll see an increase of around 100,000, a decrease of around 10,000 on your loan, and your net worth being somewhere around 270. And this is to visualize what happens when you're able to cut costs from your budget, invest them in assets, and make money grow for you and not against you. You can also highlight specific assets. Let's say you would like to look at your house. You can filter that in here. And you'll see your house increasing from 250,000 in the start of 2025 to 273,000 in the end of 2027. Just looking at this is great motivation already for you to cut costs. But let's see what happens on a five year basis. On a five year basis, again, you start out of 355,000. At the end of December 2030, you'll have assets totaling around 600,000. So almost a double up. You net worth will be around 421,000. And you would have paid off nearly 20,000 on your loan. And let's see on a 20 year basis. Here see your loan is already almost paid out. You have a net worth of just under 2 million and total assets of just over 2 million. And then of course, the longer the period is, the more loan you have paid off, the closer than your net worth will get to your total assets, as again, your total net worth is the sum of total assets minus your total liabilities. If we filter in your ETF, for example, or your house, let's go with your house. We can see again that you start in 2025 with around a valuation of 250,000 on your house. And in 20 years, the same house will be worth almost double the amount. You can also see your ETFs and your funds and stocks, and all these are just steadily increasing. And, of course, your total assets is the sum of your house, your emergency funds, and all these assets. So this should be your motivation to find air in your budget and to keep investing. And again, this is just given the assumption that your income only increases with 3%. There's no bonus, there's no extra demand in the area of your house. So I would say this is more a conservative view on finances. And if you were to update the input page every year, let's say you were to get a pay jump of $500 here per month, which is quite a large pay job. But let's say you change your job or you get more responsibility and whatever. This also compounds into the next year. Now the whole baseline for your income the next 20 year has taken into account this one raise. And let's say this year, again, you change your job, and get an extra 500. This means that if you scroll down here, on top of what you're really investing, you have an extra $600 to invest. And let's say we put it into our funds, for example, two. We get to invest $592 more every month, starting in 2027 for the next 20 years. If we look at the graph now, we see that instead of having just over 2 million in total assets in 20 years, we have 2.5 million. So these changes which we do early in life, we take a leap of faith, we get a new job, we get a new side hustle, and we focus in on investing these extra cash and getting money to work for us. It's evident how much it pays off in the long run. This is called compounding or the compound effect. This is the overview of the model. I've explained how to input data, how it works with the loans, how the average disposable income works, how to put in savings and invest things and put money aside, which will grow. I've explained a little bit about the visuals here and also how that affects the long term budget of yours. This is made on a yearly average in order to limit the amount of inputs that you have to make but let's say you want to go down into the nitty gritty and be very, very focused on every income and expense, you can also go into the private budget and make adjustments. So this is all the calculations for all the years in the whole model. And as you see, it's a very big file with many formulas, which you shouldn't touch too much. I have still made it possible to make small changes behind the scenes, so to speak, and also in order for you to get a much larger perspective on each detail and to really keep track of every expense in every month. And this is how it works. So first up the top of the budget here, you will see that this is tied up to the date of today, meaning that you would quickly be able to if you go from your input budget to your private budget, you will quickly be able to see. Okay, I have to be up to date with at least these six months, and this one is ongoing. This allows for structure, but also forces you to check if all this is correct, if your taxes is correct, if your income is correct and so on, all the things that you had on your input page. But you can also see here that I've put in corrections or the ability to make corrections. And that is, of course, the gray area here. You can make corrections to your income statement. You can make corrections to your cost. You can make corrections to the loans. These are dark gray and has to do with how you pay off your loans, for example, in quarters. So these dark grays, you shouldn't touch. And then, of course, you have your investment activities and your balance here. And if we start on the top, so this allows you to make monthly changes instead of just putting in the 6,000 in the input page and your income being 6,000 a month for the whole year. You can now put in, oh, I got a raise of 200 in March. And this continued until this continued until May. And in June, I changed jobs, additional raise of 500, for example, compared to the 200, so 700 in total. And that I'm forecasting it to last to the end of the year and also the beginning of 2026. You might also have gotten another cost deductible, a variable bonus, for example, of, let's say, 200 again. So this allows you to be even more detailed in how your budget is set up and for the model not to be as rigid and closed as it might seem at first. That's your income, Let's say you got a rent increase or you spent a little bit more than heating or water. And this is, of course, minus. Let's say you did $10 more this month and $5 more this month and seven more here, whatever. You can make corrections to all the costs that you have input. As already mentioned regarding the loans, these are dark gray, meaning, please don't touch. So let's go on to the investments. And this is, of course, if you have corrections to the amounts that you put in in different months. Let's say you put in an extra $50 because it was your birthday and you got an extra $50 or whatever, or you put an extra amount of 60,000 here in stocks in May, and so on. You get the point. This year, I would say is the most important corrections you can make because this allows for you to make corrections based on the specific amount of your savings, the specific amounts on your stocks and funds and so on. So as you know, this is projected with 8% increase over the year or 8% minus the fees and the cost of pension and so on. But you can now go in and correct these numbers by month if you want to. For example, if the ETFs increased or decreased, but more or less than this, well, you can go here now and say, Okay, actually, it was a good month. So we did an extra $100. And this is immediately changed down here and your total assets. But again, it depends on how much you want to go into detail, how much focus you want to be on your finances. You could also just say, Okay, in December, I will look into all these numbers and make adjustments so that this is all correct so that when we enter January of 26. I know all these amounts are correct, and I can project on those numbers as a baseline, but I want to spend the time to update before December 2026, so that again, I have a new baseline for 2027. But again, that's up to you, totally. I just want to show you how you can make changes if you want to. 6. The Basics of investing in stocks: Welcome to Listen four the basics of investing. In this lesson, we start out describing what are stocks. And basically, stocks represent a ownership in a company. So, for example, if you own a 1% stake in a company, then you have a 1% ownership in the company's assets and earnings. An example could be Microsoft, and when you own a small part of Microsoft, each year, when they increase revenue or grow by selling software, you take part of that growth in respect to the percentage that you own. You as an investor, are typically rewarded by either the growth in value of your stock or getting dividends. How do you as an investor, make money from stocks? As already mentioned, you buy at a certain price. You believe in a company. The company behind the stock does well. They increase their earnings. They make good negotiations to enter other markets. They cut costs by negotiating with logistics, or they just have some technology or a new medical drug or something that is patented, which nobody else can make, and they are able to scale their business and earn money. When that happens, the view on the stock and the expectations of the company increases. And that makes people like you and I investor buy the stock in the belief that the underlying company will continue on doing better. Next year, they will penetrate another market or they will fill up or enhance their current drug, which we think will lead to even more revenue and even more growth. The more people that buy the stock, the more it increases in price. And as an early investor, this means an increase on your stock price. So that's one half of making money on stocks, and the other half is that the company will make dividends yearly, meaning that they pay out money back to the investors and share the company's profits. Then when we talk about stocks, we also have to talk about bonds. These two are typically mentioned together, and where stocks is an investment in a company and a leap of faith in some way where you believe that the company is worth more than it is today. You pay money for the stock, but you're not guaranteed any return on your investment. Whereas bonds is more like a loan to a company. So you buy a bond, you give money to the company. And in the contract of the bond, it is written that at some point, let's say, over a four year period, you get coupon interest, meaning that every year, you get a specific interest rate paid out to you, and then after exactly four years, the initial loan amount that you paid, let's say, it was $10,000 upfront get that return. This is less risky than stocks, and therefore, it also offers small returns, but a stable return, nonetheless. Whereas buying a stock, you're not capped to a specific return. But then again, you're not guaranteed anything, and as I mentioned before, you could stand to lose everything. But this is about investing, and it's about investing in stocks, so I'll keep my focus on stocks and leave bonds out for now. In order to talk a little bit more about these pros and cons of investing in stocks, I've made this slide, where you can see stocks offer return through compounding gains and dividends, and we'll be talking a little bit more about compounding gains. But this is mostly about that if you were to invest, let's say, $1,000 in a stock today, it increases with 10%. So next year it's worth $100. Then going into year two, and t's say, again, we expect an increase of 10%. The increase is now based on the $1,100 instead of $1,000. And this is called the compound. So what more does stocks offer? It is easy to buy. It's easy to sell, meaning that money wise, it's very liquid. And if you compare this to, for example, your car or your house or your rare Pokemon cards that you want to sell, yes, these are worth something. But you could have, let's say, $10,000 in stocks. And the next day, you could sell these and have cash in hand. This is valuable to have something that can increase in value, but you can also liquidate it and use the money quickly. Whereas, for example, if you want to sell your house or your car or something of value in your home, this could take days, weeks, even months. Also, it offers a protection against inflation, and we'll talk a little bit about this on the next slide. But basically, as you've probably heard before, when you have money sitting in your account with no interest rate on the account itself, so the money that you have deposit, if there's zero interest rate, then as inflation increases of one to 2% year over year, it's not that you lose money in your account, but imagine everything outside of your account, all increase with 1.2% a year. And if your money in that account does not increase with the same interest rate a year, that means that your buying power for that money has decreased. But I'll show that more visibly in the upcoming slides. Stocks also offers the possibility to really dive into a company in your line of work and have a strong conviction in buying into that company. So you can use your knowledge and your expertise to find good companies, which you know are doing good business. And since you're in that work area, you know that this company they have awesome products, or you know, if they make this big deal, then they will completely wipe out all competition. Then you as a investor, you get to really dive deep into this company and make it so that this knowledge that you have, since you have worked in this area or you're just interested in this area in particular, you get to translate that into making good investments. But then, of course, on the other hand, when you have pros, you also have cons. First, risks are these typical pitfalls. You'll have new investors, and I've done this myself. You're chasing the hottest new stock that all your friends are talking about or someone at work is talking about, and you just dive head into the stock not really thinking much. This can be profitable in some situations, but in the majority of situations, you'll see that people are just buying into this stock as a hype. And when you really take a look into the fundamentals of the company, there's not really any substantial proof or evidence that they should be worth this much. Again, this has to do a lot about the human psychology where we don't want to be left out. We have Fomo fear of missing out. And instead of thinking, we just act. The second pitfall is that typically the new investor would try to time the market, which translates to that when we see a stock, which we have been observing and wanted to buy, when we see that taking a and we are looking for a time to enter. Sometimes we simply wait too long. And let's say we wanted to invest $1,000, instead of buying 100 this week, 100 the next week, the next week, and so on, this is dollar cost averaging. Instead of dividing our investments over time, we sit there, we wait for it to drop, and we're waiting on, okay, it can go even further. And then the next morning, it shot up 10%, 15%, whatever. And vice versa, we see a stock increasing. But we're still waiting a little bit for conviction from the market, and then we see a big increase the next day. We're still waiting a little bit and even bigger increase the day after. We're better left off with the first method of just investing a little bit into the stock and kind of spreading out our risk and increasing the likelihood that we will catch these increases. Of course, this has to be weighed up against these transaction fees, so you have to pay every time you buy a stock. But one could argue that it's better to pay a little bit more transaction fees to make sure that you get a more decent try when you invest in the first place. Third pitfall and probably the most important is that new investors invest in stocks without understanding the business. And this ties to the first pitfall of chasing the hot stock, but it also has to do with new investors investing in stocks. It simply underestimates the time that you have to put in on following up on your investments and looking into the markets of the companies which you have invested in in order to be successful. Yes, of course, you can buy of these blue chip companies such as Microsoft, Apple, Coca Cola. And that's a completely plausible way to invest. And that's how I invest myself as I do not have the time and effort to put into analyzing and reading up on all these different reports and market updates and so on. But if you're sitting out there and you want to find the next hidden gem, you have to spend the time and effort to learn about the companies, to learn about what makes this company special in the market. Why do you think they have longevity? What is it that makes them special? And from all that data and knowledge, then you can have conviction and start investing. Then onto risks, you have market crashes and you have all the external events which are out of your control. So you could have strong conviction in this new company. They're doing great. They have a new CEO. They just rammed up their production line. But all of a sudden, a worldwide event happens that clogs up their logistics, meaning that they could not get their machines home, to produce the product, to fulfill the orders, and now they're in bad shape. These are risks from the whole world, from the market. Difficult to factor in, but still a risk nonetheless. Then, of course, you have the underperformance of the company which you have invested in. Let's say they, for example, over promised and underdelivered, and halfway into the year, is projected that now they're only going to do 80% or 70% of these projected earnings. This, in most cases, makes the investors like you and I lose faith in their ability to fulfill their promises, which reflects in the stock price, typically negatively. And then the last two cons, you have dilution of shares where a company creates more shares and dilutes your current ownership of the shares, decreasing the worth of your shares, and of course, you have bankruptcy. And bankruptcy of a company typically means that you lose everything that you invested. But I would say, as I note, that these two, the dilution of shares and bankruptcy is mostly happens to mid to smaller companies. So this is a risk that you have to think about, as well. Before investing, ask yourself, how comfortable am I with market ups and downs? What's my risk tolerance? What's my horizon? Do I invest into something that I believe can grow in the next ten years, or is it a one year period of a new shiny product or whatever? It's healthy to have a mindset of where's your boundaries. And when you buy stocks and kind of pick eggs to put in your portfolio and in your basket, it is commonly known to pick something which is not in the same sector. So, for example, you would maybe pick one or two stocks in tech, you would pick some in healthcare, and you would also diversify in different countries or in different regions. So, for example, you would not have everything invested in let's say Europe, then you would also bring in some from USA, emerging markets in Asia, maybe invest in some stocks in China and so on. And that means that if some of your investments take a hit, then hopefully you have other investments, which you also believe in in different countries that can take some of this hit. Or they are even correlated in some way that when the American tech stock decreases, this is seen as a good sign in the Chinese tech stock, and then you get a little bit of increase there to pattern out the loss in the US. If you see where I'm getting, instead of just having one stock where you put everything into, and you kind of write that stock write or die, if it goes up, it goes up, goes down, it goes. Then you kind of spread your money out a little bit, still in companies that you believe in, which is well built and hopefully gives you a great return year by year. So with all this extra effort into analyzing and having to dive into the financial, as well as the market, as well as these cons and pitfalls and risks, the question is why is it still important to invest? And this is mainly because of two reasons where I will show a quick example in a little bit. But it is mostly due to investing is a way to beat inflation. And secondly, it is a mean or a tool for letting your money work for you. And this has due to the compound effect. But let's take a quick example of inflation. You have a savings account of $1,000, and on that savings account, you have a interest on the deposit of 0.5% per year. Over the next ten years, you will have gained $50 on interest, meaning that the total amount is $1,050. But at the same time, the rate of inflation is at 2%, which means that even though you've gained the $50 in interest in the same period of ten years, your savings has become 20% less worth. Your rent has increased, your water bill, your electricity bill, your insurance, everything has increased, except your money. And that is this hollowing out effect. And the main reason that you want to put your money somewhere in a high interest savings account, you want to buy bonds or stocks. So putting money, investing in a portfolio that is so diversified that you get the market return because if you look at the whole stock market as a whole, on 100 year basis, for example. And if you average every return out, factoring in all the ups and downs, you get a number which is around eight to 10%. And the earlier you as an investor invest in the market, the more time your money has to grow. And that's what I've tried to show here with the example with Anna, Bo and Karl. Where you have Anna starting at 20, you have Bo starting at 30, and Karl starting at 40. So you'll see that Anna is investing $200 per month, and so is Bo, and so is Karl, but they start out at different ages. And if we take a scope of 60 years in total, we'll see that since Anna started at 20, she invested for 40 years, and this amounted to an investment of $96,000. But the gains which compound it amounted to $575,000. Have Bo, who started ten years later than Anna, meaning that he only get to invest $72,000 over this 40 year period. And you see already now that this ten year difference means that his compound gains amounted to half of Anna, which is 221,000. Then at the end, you'll see that Karl, who started investing in his 40s, he only gets to invest for 20 years, a total of 48,000, half of what Anna has invested. But you'll see that even though he invested half of what Anna did, his money did not get to compound over years, and he ends up with 70,000. Only amounts to an eighth of what Anna ends up with. But if we go a little bit deeper and say, Okay, but Karl only invested 48,000 and Anna invested double of that. So if we go here and make it so that even though Karl starts at 40, he starts out by investing $400, which makes it so that in the end, he has invested the same amount as Anna, also 96,000. And now we see that even though he has invested the very same amount of Anna, this only amounts to 141,000 compared to 575,000, which Anna receives. This just goes to show that one thing is putting an amount aside to invest, but you also get a huge advantage of your money working for you along all these years and compounding gains upon gains upon gains. This is why I've made this example to show you the power of compounding. I'll also leave this along with the other tools in order for you to play around with it if you want to. So up until now, we've talked about what stocks are, how they work, the pros and cons, and also stressed the importance of investing and investing early. You might be seeing now thinking, Okay, how do I begin? What do how do I find stocks? How do I find companies to analyze further and how does this whole thing work? In order to invest in the first place, you would commonly find what's called a broker. And with a broker, you would open a brokerage account, and through that account, you can invest. And throughout different countries and different regions, there are a lot of different brokers. It is best to find a broker which has knowledge of your country and the rules and laws of your country before you open account. I would go talk to either my bank or a financial advisor in order for them to point me in the right direction. Also, before you start investing through a regular broker, check if your country offers special investment accounts. It can be a smart move to fill these up first depending on how they are set up. These accounts often have a annual or lifetime contribution limit and sometimes rules about when you can withdraw the money. Even though they have these restrictions, it is worth investigating because using them even partly can save you a lot of tax and boost long term returns. Just to name a few popular ones, we have Fidelity, Vanguard, Child Swap, Nonet, Desiro, Saxo, and many more. The importance here is just to understand that you sign up at these brokers, you use your ID, your TIM number or CBR number, your personal tax number so that the brokers know who you are and also so that they can report your earnings, your losses in order for your state to do your taxes. For the most part, this is completely automated, and it's quite easy to use. The main thing is here that you go to website, you sign up, fill in your information, open the account, then you can transfer money to it. Then from there, you can use there too to find stocks. You can search up the name you can buy, you can sell. Most of these brokers, they would also have you take a test before you can do anything, just to learn the interface and learn the basics of investing. It's really straightforward. The only thing not straightforward is how to pick and how to analyze the stocks that you want to buy. So an overview of how to analyze a company First up, you would start by understanding the business. What do they sell? How do they make profit? What is the deal? What is their value proposition? Then you would check for a competitive edge. So look for their strengths, their patterns, their market share. What makes this company stand out and what makes you believe that they have something unique that they offer to their customers or to their business partners. You also have to look at the bigger picture and the trend of the market, so to speak, even though you understand the company and it has a bright future. What about their sector? How is their sector moving? How do you see that sector going onwards? Do you see that sector as being profitable for the next five years, ten years, 20 years? This is, again, very important to think about for the stock, but also for your investment horizon. Maybe it could be a good investment for the next five years. But if you want to find a long term investment which you believe in, maybe you have to find a stock within a sector that's growing and has possibilities and it's not declining. This is arguably the three most important questions to ask yourself before investing, the fundamentals of how it works. Once you've done that, you can start looking into the cash flow, the balance sheet, they return on equity, the price earnings, and so on. And if you take, for example, the financial statement, you will look at the income statement. Has the revenue been growing for the past years? Also, has the revenue been growing at the rate which the company has promised? How are their assets compared to their liabilities? Are they continuing to have extremely high debt, so liabilities? And more important, can they pay off the interest of these liabilities? The cost behaving? Do they increase cost or try to decrease cost? If they are increasing cost? Is that because they have just bought new products or machinery, for example, which is supposed to help the company grow for the next three years or whatever? Below all the revenue and the cost and the balance sheet. So is there anything left? Is there cash flow after this? So what do they do with their cash flow? Do they invest it back in the company or do they distribute it to the investors? If they are distributing it to the investors? Do you think that is too early for the company? Do you think they should invest more back into themselves? Because they are in a critical phase of growing or are they at a point right now where they can actually pay out? What do you think? So now this is some thoughts to look at the financial statement, but there are also some key ratios which you can look up online, which is used to analyze the company you're looking at and compared to other companies in the same sector. This is, for example, the most common ones is ROE, return on equity. And this is basically to take the company, deduct all debt or liabilities, and then you have your equity. So if you have that number, and then you have a number of how much income you did, you divide those two and you get a number. This number shows how much the company has grown compared to its equity. Then you have the net profit margin, where you divide the net profits with the revenue to see how much profit you actually made after cost. So even though the company is bringing in X amount of dollars in revenue, how much is left after cost? These two key ratios is mainly used to see how profitable a company is. And it's kind of easy to get a two digit number and go to another company, do the same analysis and compare that number to the number which you get from the new company. A quick way to compare different companies. Then you have the valuation ratio. The most commonly used is the PE ratio, which takes the market price of the stock and divides it by the earnings per a way to compare the value of the stock of how much the stock is going to pay you back, essentially. So a recommendation for a free two is this website called thinwis.com. This site, in my point of view, offers one of the best overview of both stocks, markets, commodities. You even have crypto. You can go to a news section here where you can choose between market news, stock news, News, and crypto News with every story coming out from some of the biggest newspapers, you can click the Link, and it goes directly to the article. Here, this is, for example, Trump talking about the next move that could hit Pharma. You can go to Home. If you want to look at the whole market by sector, you can click this one, and you can see you have technology here. In this sector, you have Microsoft, Oracle, Penca. You have some of the biggest players. You have semiconductors with Invidia, AMD, Inocorp and so on. You have financials here with JP Morgan, credit services, with Visa Mastercard as a management, financial data, capital markets, healthcare, communication, consumer cyclical, with Amazon, auto manufacturer. And with this, you can see first up how the whole market moves, but also which sectors in the market that pulls the gains or takes the losses. This is SP 500. You can see Russell 2000, so 2000 stocks. You can see the whole world here, ETFs, even crypto. And you can kind of play around if you want to see the bubbles or maps or whatever. But this is a super good overview to play around, in my opinion. If you go back to home, you can see some of the biggest companies here. You can see if you scroll down, you can even see the major news and how it affected the different stocks. If you scroll further down, you can see it's called insider trading. So this is, for example, the CEO or the chief legal director, whatever, you can see if they sold anything, if they exercised an option, and so on. Also, a great tool if you want to follow a specific stock. You have your commodities down here with oil, natural gas, gold, so in total, a great overview, and I use this daily to see what's going on and keeping a ear to the ground, so to speak. Instead of having to read thousands of different articles or having to wait at the specific company's website to release a statement on something that I can just look here on the news. And for the most part, it pops up here. And another thing is that if you really want to dive deep into a company, we can search up, for example, IVDa so here NVDA, Corp but down here, you have all these KPIs that we talked about. So you have the PE, you have the PEG, you have the enterprise value compared to Ipta. You have all these kinds of ratios. You have earnings per share over here, which turn on equity over here. You have a profit margin here, and on the far right, you have the performance. So performance per week, per month, per quarter, three year, five year, and even ten year. And the cool thing is here that they have already listed the peers, so the biggest competition to NVIDIA. So if you want to go check, for example, MD, you can go there. Look at their ratios and quickly get a view of how do the two companies stand compared to each other. You could also go to Intel, for example, see their numbers. So a quick, efficient overview where the calculations of these different ratios are already done for you and set up for you to perfectly dive into. But if you want to see the numbers for yourself, you could go to the statements. There is a income statement. So you can see the total revenue, you have the gross profit, you have the cost of goods, interest expenses on the loans, price to earnings, net margin, and so on. The balance sheet where you can see their total liabilities, their total equity, and also their return on equity. You could go to cash flow, and you can see the cash from operating activities, cash from investing activities, cash from financing activities, and at the very bottom, you have the free cash flow. So I would highly recommend using FINWIS and for you to play around with it, just in order for you to get a taste of you see the news, you see what's happening to the numbers, and you get a feel for how these two correlate, both with the single stock, but also in the sector and the whole market. Also have liquidity ratio and solvency ratios and a lot of ratios and metrics, which has rules of thumb of where it should be for the company to be healthy and the company to be in good shape. But you have to take all these ratios and also put it into perspective of what type of company is it? Where is the company in its lifetime? What is the market expectations? What is the management saying about these ratio main point here is just that alone, you cannot take these numbers for good. Before you go headfirst into all these finances and read all the small details of a company. You should simply understand the business, check their competitive edge and see if the sector which they're in is growing. After that, you can use these ratios in order to compare different companies and see which company you believe in the most. And just to make a bridge from Lesson four to Lesson five, have been talking about how to invest, where to invest, why we invest, and what to be coacous about. And as we saw with Anna Buen kal, long term and consistent investments works. 7. Investment Funds & ETF's: Welcome to Elison five. In this episode, we'll be talking about investment funds or ETFs, and what these funds offers compared to picking your own favorite stocks and making a portfolio, doing all the homework, putting the time in to stay on top of the market, and so on. Index funds would do the same on a much larger scale and for the most part with lower fees. So following the articles from Spiva scorecards, as well as Spiva US in 2023, it has shown that most active investors underperforms the market over time, meaning that most active investors and investment funds can overperform the market short term, but this overperformance is typically short lived, as the longer period you focus on, the smaller the percentage of active investors beating the market becomes. In 2023, over 85% large cap fund managers failed to beat the S&P 500/10 years. And the S&P 500 is index that follows the 500 most valuable companies in the world. And remember, this is professionals that spend their whole full time job dedicated to managing the money of the investors in order to actively beat the return which the investors could have by investing in the market. These actively managed funds with experts and high personalities in the front will typically have higher fees. They normally have fees on managing your money, and then they also take a cut of the ins which you make throughout the year. And as we saw in the example with Carl Bo and Anna, in the previous episode, both gains but also cost compounds, meaning that these costs or these fees, they're not only eating your profits this year, but also then hindering your money to become bounded next year, next year, and next year again. And this amounts to a huge difference in the long run. And that's exactly what John Bochle, the founder of Vanguard, spent his whole life proving that low cost index funds or ETFs outperforms most active investors. Also, on top of that, John Bochle argued that index investing is simple, it's cheap. Effective. And if you invest consistently, you don't need to beat the market to make wolf. So instead of chasing returns, focus on increasing your income and let your investments quietly track the market. And this is backed up by Ron Buffett saying that compound over time is your biggest advantage, where he argues that even modest returns grow significantly when invested over decades. In the market beats timing the market. And to top it all off, W Buffett, actually in 2007, made a bet with one of their most popular actively managed funds, saying that he would bet $1 million, to prove that S&P 500 would beat the hedge funds over time. And around ten years later, he cash in the bet of $1 million. Eugene Farmer argues that the reason why it's difficult to consistently beat the market and consistently find the good stocks to make the good returns at the right time is because of the efficient market hypothesis, saying that all the information's out there already so the yearly reports or the newest headlines of this stock's performance or the CEO of the company making a statement, all investors have the same information at the same time, meaning that as soon as this information is out in the market, it is priced into the stock, and that makes it so that it is extremely difficult to find good deals consistently. And if you think about it, most of the stocks which you see completely booming overnight is because something out of the ordinary happened. And these sudden news, they just come out of nowhere. And what are the chances that you as an investor would be able to foresee all these huge news coming that would be close to zero. And that is the main idea of the efficient market hypothesis. Also thought to include Burton Malkil with his popular theory in his book named a random walk down Wall Street, where he explains that information of stocks, which we talked about the workshop a CEO or the annual reports or a big event that harms the company, for example, happens randomly. It's not consistent, and therefore, it is nearly impossible to predict anything about the stock and its movements. And since the movement of the stock on the short term is unpredictable, trying to do all these technical analysis with the SMH line and all this technical analysis of the stock, from his point of view, mostly a waste of time. And you're better off investing long term in something with a low cost and a diversification. And that is mostly what index funds are all about. It is about diversification. It is about spreading risk. And what happens is that instead of buying one, two, 20 stocks and having this single company risk, you have a bucket of, let's say, hundreds or even thousands of stocks, making it so that for the first part, you're not so dependent on your stocks as an individual performing. Since you own so many companies, if one or two or even ten doesn't go as expected, then you have another sector. Then you own a healthcare. You own agriculture, you own farm, which have a great chance of being the booming sector of that year, and that would outweigh the loss in the first sector. Meaning that at the end of the year, even though you lost in some sectors, these losses were greatly outweighed in other sectors, and you book a gain for the year. And this might not be the biggest gain as you would have had if you, for example, picked Invidia in the year where it was booming. But that gain you had came with a lot less risk, but second of all, with a lot less time consumed and having to stock pick in the first place. Baseline is that index funds or ETFs, exchange traded funds, balances global exposure. And by investing in different regions and economies, it helps you protect your portfolio from local downturns. To be super specific, I've put it up here. So you have stocks on the left side and ETFs on the right side. And you'll see that when you pick stocks, you go to market, you have to choose yourself you invest in a single specific company at a time. By doing this, you have a higher company specific risk, higher risk of losses, but also a potential upside with gains, of course, requires research and ongoing monitoring. There's a potential for rapid value fluctuations, and this is what we talked about earlier, these random news or information will have great effect on the value of the stock. And it is often a part of a more active investment strategy. Total, there's a lot of work in having stocks, but this is also what some investors find thrilling and entertaining. Then on the right side, you have ETFs, where you invest in many companies at once, you have a low risk through diversification. It is more a passive form of investing. You don't have to stock pick as you buy index, which automatically follows a market. You're choosing, it is broadly known as a stable and effective way of achieving long term market returns, and it is suitable for investors with less time or experience. Let's say you are more on the right side and you want to spend less time and, frankly, just want to make a consistent return. What is important when choosing these ETFs or investment funds? Of course, this matter is subjective, and it depends on what you want to invest in and which sectors that you believe will do great in the long term. But now we'll talk about what will matter, whatever you choose, and that is fees. So we're looking for a fund, you can choose either a actively managed fund or a passively managed fund. The active managed funds will have higher cost since you have people actively buying and selling different parts of the fund. And I thought a lot about this because if you don't believe that actively managed funds can beat the market, why would you pay someone to do what you could be doing. If I want to buy the market as a whole, understood between buying it passively with no extra fees or paying one to 1.5% for a fund to do it, and they invest in the same funds and the same market. Isn't it just throwing money away in some way? So we'll look at fees, and when you find a fund, you can look them up, and in the very bottom or in the very top, they will have these fees listed. So that's the most important thing, fees, but you also have to look at how good of a job these funds are doing in tracking what they're saying they're tracking. So for example, let's say the S&P 500 had a return of 10% does the index fund or ETF have the same return of 10%, or is it 9.5, for example, or nine or even eight? Because them low fees don't really matter if you do not end up with a percentage of what you should. So another thing that matters both when you're looking into stocks, but also into mutual funds such as ETFs is your risk profile. As mentioned, these index funds and ETFs allows you to buy out sectors instead of one specific stock. And before choosing what area, how many areas, which areas you want to buy, you should have your risk profile in mind. To give you an example, you have low risk, which is choosing the broad market or bond heavy index ones, one that captures the world, so to speak, so that you have a little piece of every large industry in most of the world, which also means that you will take the gains and the losses of just about everything, and you can expect low risk and low volatility. But since you have lower risk, you also can expect lower returns. Whereas you could go a little bit more moderate risk and go for, for example, SP 500. These are historically well performing companies with a good track record and are known for performing well year after year. But then again, by only having 500 stocks in your portfolio, only having 500 stocks in your portfolio, that comes with less diversification compared to the low risk where you buy into the whole market, and therefore, at moderate risk, there is a risk that the top 500 companies are not evenly spread out over the different countries, continents, and sectors. As SP 500 is known to be quite tech heavy, then you are more exposed to risk, but also a chance of a higher upside. Then of course, you have high risk where you buy into funds or ETFs, which are very specific in one sector, that could be emerging markets, that could be tech, for example, if you believe really, really much in tech and what's going to happen in tech the next ten years, you can buy ETFs that are focused solely on that sector alone and only the companies in that sector. That could come down to 20, 30, 40 companies. And with that, as you already know now, there is a higher risk as you get this sector specific risk, meaning there is no safety net balancing out your returns. If the TF, which you picked gets wind under its wings, you could see a significantly higher return. But then again, the more specific and the more niche these funds becomes, it decreases the difference between having a fund and having just a simple stock. And at some point, you get to a situation where you have deviated from your original idea of buying the home market and not putting too much effort and time into it. But of course, you could argue that in choosing more of these very specific ETFs and bundling those together, you can create a portfolio which has greater diversification that different single stocks into your portfolio would have. And by doing so, you don't have to spend so many fees on trading the specific stocks and rebalancing your portfolio and so on. It is arguably a fin line. Since compared to stock picking, you're not watching one stock anymore, but you're still having to watch a whole sector and be able to invest or divest as you go. Just to pick a few, buying these ETFs is the same as you do with single stocks. As we talked about in earlier lessons, you pick a broker, you can search different ETFs. You can look at the cost, the market spread. You can look at the tracking error. Just as an example, I have these five, which I want to go through. The first one is the S&P 500. This is from ASHA's C, S&P 500, ETF. This is in US dollars, and this ACC stands for accumulating. The counterpart is DIST, which means distributing. And we'll get to that in a minute. Then there's a SINCde that is the unique code for this specific ETF. So you could either search up the ETF name or the ISN code. Then this ETF has a cost of 0.07% per year, and it tracks the 500 largest publicly traded US companies. Then we have another one from ISAs. It's called ISHAS Core MSCI World, also US dollars, also accumulating. The ISN code is here. There's a cost of 0.2%. It gives broad exposure to developed markets across North America, Europe and Asia Pacific. We have emerging markets. It's called Ishars C MCI, EME IMI. You get the rest. It's accumulating icing code here and a cost of 0.18%. It covers, and it's also accumulating. It covers large, mid and small cap companies across the emerging markets countries. Then you have Europe, ISHAes C MSI Europe. This one is in euro and it's accumulating ICN code is here, cost of 0.12%. It tracks large and mid cap European companies in developed markets. And then the last one I have here is called the IHRs MSI Europe Information Technology sector. The CN code is here. You have your cost here. It's also accumulating. And this is focused on European companies in the information technology sector. And these five are just an example of funds you can find. There are hundreds if not thousands of different funds. And just to underline, these are just examples. I've tried to find those with lowest cost, but that might be different for you. Accounting and currency, for example, how your country taxes them differently. Normally, the government will have a list of how they tax the different ETFs, and this is just as important as the cost, as the taxes also eats away of your gains over the years. So before buying anything, try to decide on your risk profile, decide on which sectors do you believe in, look up the cost of the different ETFs, and also look up if any of these are taxed differently. So just to touch up on the accumulating and the distribution, and the difference between the two, the accumulating funds does not pay out anything to the investor. I reinvest the dividends automatically, and this is good for long term growth as you do not pay personal tax before you decide to sell them yourself. Then on the other hand, you have the distributing funds. These pays out dividends as cash, and it's good if you want regular payouts. Although have in mind that you are taxed on these payouts, if you were to put them out from your brokerage and into your personal account. But also if you do not reinvest into the fund, the money is not compounding. As the accumulating funds, they automatically reinvest into the same fund without you having to take any action, you just have to sit back and relax. There's no right and wrong. The choice is very subjective and also dependent on the tax laws in your countries, how your personal finances are set up, and also mostly dependent on how do you want to invest. Do you want to see the money coming out, or do you want to just leave it there? So, thank you for following along. A quick recap of this lesson. Index funds offer diversification, simplicity and low cost. Broad and global funds are a great starting point. Make sure to watch the fees, as small percentages make a big difference over a long time. Check up on your portfolio and rebalance if needed. And lastly, when investing in index funds or ETFs, it's about the long term. The goal isn't to beat the market, it's to capture the market's return patiently and consistently. 8. Opportunity Cost & Other Assets: Welcome to Lesson six. For the past five lessons, we have talked about the psychology behind money habits, how to find pitfalls. We have talked how to fix them, what can be done, what systems and what behavior can I change? What systems can I set up in order to avoid these pitfalls in the first place. This has led you to being able to create a budget in Lesson three, cutting out costs, and shifting the look of looking at your expenses all the time to saving and investing and forecasting and actually look into the future ins the lesson four and five, we've talked about how this is done most efficiently, but also personally and most beneficial for you. First up, I thought lesson six would be much about investing in stuff which is different from index funds, stocks and ETFs, and how it increases the diversification of your portfolio even more. But instead of talking about these currencies, commodities, and so on, I thought to make this a discussion of opportunity costs. You see opportunity cost everywhere you go to describe it as simple as possible. Opportunity cost is thinking about everything in relation to each other. So investing in stocks with 8% return or a 10% return or whatever, that is a use of your money and you putting the money somewhere. And by doing so, for a period of time, you lock your money in that place. Opportunity cost is now the question of is there a cost of you missing out on another opportunity? This could, for example, be that you had an opportunity to buy into a new startup, for example, that needed money at the same time where you invested in the stocks. So you chose to put the money in the stocks instead of the startup, and you're not able to get the same opportunity for the startup again. Another example could be that you could put it into down paying your mortgage on your house, for example. But by doing so, again, you lock your money into down paying on the loan. Let's say in a half a year from now, the interest rate on the house drops, meaning that instead of 10% or 8%, it goes down to 2%. Now you have locked your money in down paying on something which only cost you 2%. Whereas, if you have put the money into the stock market, for example, then you could have an expected return on the same money of 8%. By doing so, wherever you put your money and say yes to putting your money is a no to so many other things where you could put them if you see what I'm getting at, and the decision of where your money should go can differ depending on your risk tolerance at that time, your financial goals at that time, and also just the stability of your finances. And this is also very difficult of striking the right balance between security and growth, but that is what turns financial decisions into long term success. So the key takeaway here is that before you spend any money, before you invest anything, look at the whole picture, the bigger picture and see is this the right time to do this? Compared to all the other options that I have. And from the other options that I have, what is the best possible outcome? That is the main point here that you cannot just see an investment or the purchase of a stock or an ETF as a solely standing opportunity. It has to be seen in comparison to the whole picture, to the greater picture, which is your life. But since this lesson is also about what else can you invest in than stocks and ETFs and bonds, just wanted to list a few here, compared to the risk they bear. Let's start with the safest investment category, money market funds and US Treasuries. These are the kind of investments people use when safety and liquidity matters most. Money market funds invest in short term instruments like treasury bills, or certificates or deposits, things that are very stable. They're great for parking cash temporarily, most like a super secure savings account, which we talked about in lesson three, for example. US treasuries. These are government bonds backed by the full faith of the US government, which is often considered the safest investment in the world. There are short term bills, medium term notes, and long term bonds. They won't make you rich, but they are a cornerstone for stability and capital preservation. Then number two, you have tips, which is treasury inflation protected securities. They are government bonds that adjust automatically for inflation, and this is more than US government bonds, so bonds for the whole world. These bonds are adjusted for inflation automatically. So if prices rises, your return does too. This makes tips an ideal investment for cautious investors who wants to make sure that their money keeps their value over time. Then we move up to fixed incomes, a broad group of bonds that pay regular interest. This can include government bonds, corporate bonds, or even municipal bonds. Essentially, as we talked about earlier, you're lending money to a company, a city or a government, and they pay you back with interest. Have in mind that risk varies, so lending to the US government is very safe compared to lending to a small company which is riskier as they can default being unable to pay back the loan. Returns go up as this risk of default increases. So this is about a steady income and measured risk not chasing quick wins. Now we until the middle ground, which is real estate, it has a moderate risk and a long term growth potential. You can earn both rental income and hopefully see your property appreciate in value as well. Real estate is also great for diversification because it doesn't always move with stocks or bond markets. Next, we have dividend stocks, which is shares in companies that regularly pays out part of their profits to shareholders. These stocks provide a reliable income and are typically less volatile than growth stocks. Then we have equities, so large cap to venture capital, and now we step into the broader world of equities or regular stocks. This includes everything from large, stable corporations, Apple, Coca Cola, Missile, Microsoft, you name it, to small high growth startups. The smaller and new the company, the greater both the risk and the potential reward is. Next, are emerging and venture markets which represent the highest potential growth and volatility. Talking about fast growing economies such as India, Vietnam, or Indonesia or early stage industries like AI, so artificial intelligence, biotech, green energy, et cetera, in developing regions. These markets can deliver huge gains as they grow and modernize, but they're also unpredictable, influenced by politics, infrastructure, and other global trends. Best suited for long term and risk tolerant investors who can write out the ups and downs for a possibility of exceptional returns. And then finally, at the very top of the risk return scheme, we have entrepreneurship. So starting your own business, this is the ultimate high risk, high reward investment because you are the one taking full responsibility both financially and emotionally. Start a business, you're investing your money, your time, and your energy into an idea. And if this succeeds, the returns can be extraordinary and far beyond what most financial assets can deliver. But do have in mind, you're not investing in a company, you are creating one. So the key takeaway here is that as we move down below, from money market, all the way up to entrepreneurship, the story is clear. With every step, potential reward increases, but so does risk and uncertainty. The key to successful investing isn't to avoid risk, it's to understand it and to balance your portfolio according to your goals, time horizon, and comfort level. At the end of the day, investing is really about balance. I