Does anyone remember those personal finance classes we took in school? The ones where the teacher explained the importance of balancing a checkbook or the power of compound interest? Oh, that’s right.
Those classes did not exist.
Luckily, we can rely on financial experts to guide us in the realm of personal finance. Some even have fancy titles such as Chartered Financial Analyst (CFA) or Certified Public Accountant (CPA). They have all the answers, right?
Well, as a CPA myself, I’m here to share some of those trade secrets and to pop the bubble on what they teach us.
My first business school class on finance sparked something deep inside me. Over the following 12 months, I would pick up a biography of Warren Buffett and start reading anything and everything relating to finance, economics, and of course, accounting. Accounting is what I ended up focusing on and, after college, I took the tests to become a licensed CPA.
Becoming a CPA is no easy task. Depending on the difficulty of the exam, the pass rates range between 45% and 55%. There are four exams altogether, so there are many nights and early mornings spent studying.
To put it simply, there is a lot of studying required, and a lot of dry business knowledge that you have to absorb.
Here are four things I learned from becoming a CPA, and how they affected my understanding of personal finance.
1. Personal finance was a topic to explore on your own, not in the classroom.
Despite the amount of material we covered, the topic of personal finance never came up. We never had to study the impact that credit scores have on mortgage rates, or how saving 11% of our income instead of 10% of our income translated to retiring two years earlier.
Don’t get me wrong: I’ve had to deal with my fair share of interest accruals, but I learned to do it from a corporate or partnership perspective rather than from doing my own finances.
2. It’s best to look at your own personal finances like a business.
Becoming a CPA taught me how to view my personal finances as a business. I now seek a higher profit each quarter and I ignore the market valuation of my stock price — in other words, my net worth.
By optimizing my budget, I’m able to build assets while reducing liabilities. I can identify leaks in my structure and reorganize my cash flows to be tax-efficient.
Plus, it helps to not take my things too personally, or get too hard on myself about my spending. When I slip up and make a big purchase — let’s say a nice bottle of whiskey — I can allocate that to the cost of doing business.
3. Just because you work with money, it doesn’t mean you’re good with money.
Becoming a CPA also helped me see how society automatically assumes someone in my position would be good with personal finance. Society today views people in my profession as being inherently good with money. I find that ridiculous, since I know my fair share of CPAs who are still living paycheck to paycheck.
With the way our society is structured today, we often view people as “rich and successful” based on their displays of shiny toys or their career choices. Luckily, books such as The Millionaire Next Door: The Surprising Secrets of America’s Wealthy teach us that millionaires are more often driving used cars than the imported luxury models.
Being aware of this has helped me to identify true experts when it comes to financial advice. The truth is, having letters representing credentials behind your name does not guarantee that you have my best interest at heart.
4. It’s important to educate yourself outside of your career.
I continue to learn about personal finance from books and blogs, because my professional career isn’t teaching me anything about how I, personally, should handle my money. After all, if we spend 2,000 hours a year earning money, shouldn’t we spend a few minutes each week learning how to manage that money?
Image via Unsplash