Lucas Brenner » Articles » Organizing Your Finances Is Easy!

Nowadays it is very easy to organize your personal finances. Thanks to technical possibilities, digitalization and ever better explanations, you don't need a degree in economics to invest in stocks. Nevertheless, the stock market in Germany has a reputation as a game of chance.

Financial advice is often much more harmful than taking care of your own investments, because “experts” sell you products you don't understand. That's why it makes more sense to acquire knowledge yourself in order to be able to make independent financial decisions.

This article is therefore not intended to be financial advice, nor does it recommend any products or financial institutions. Instead, I would like to show you the path I took and encourage you to do your own research. Finanztip[1] is a very good place to start.

The Trinity of Personal Finance

To set up your personal finances in the best possible way, you really only need three parts.

You use your checking account as before for your daily expenses, your rent, to pay the bills and as an incoming account for your salary. Make sure that you pay no or very low fees for your current account. This account is also linked to your credit card(s), which you should pay off in full every month.

You use your savings account to store your emergency reserves. three are usually only relatively low interest rates, so the savings account is actually not suitable for saving. You should have at least three months' salary available in your call money account so that you can access it quickly in an emergency. On your checking account, on the other hand, you should only have enough money so that you don't accidentally slip into overdraft, because on the checking account there is no interest.

You use your stock portfolio to save and invest your money. However, it is best not to buy individual shares, as these would be too risky, but to invest in so-called ETFs (exchange-traded funds), which, for example, track the stock market of an entire country. This minimizes the risk and these computer-controlled funds are significantly cheaper than conventional financial products. The most frequently recommended ETFs are the “MSCI World,” which tracks the entire global economy, and the “MSCI Emerging Markets” ETF.

Pay off Debts First and Save Regularly

Before you start investing in stocks or ETFs, it is very important that you pay off your debts and create an emergency fund. If you invest in the stock market for the long term (more than 15 years), you would not have made a loss in the past if you invested in the “MSCI World,” but there is no guarantee for the future. Think of investing in this ETF as a bet that the world economy will grow in the future.

However, before you invest, you should pay off your debts (that includes credit card debt!) and build up an emergency fund. After all, you can't withdraw money you invest in ETFs as quickly as you can with your savings account. Also, you might have to sell at a very inopportune time and thus make a loss.

Therefore: First establish the habit of saving and then venture into your first investment, preferably via an ETF savings plan.

If you want to learn more about these topics, I can recommend the website Finanztip, which provides information and recommendations about finance through blog articles, an email newsletter, and YouTube videos.

This article is just the beginning of your journey into the world of finance!


[1] Finanztip specializes in the German financial world. For other countries, there may be other, more suitable websites or informational offers.