Personal finance is a key aspect in life that most people are illiterate about and is also not taught in the majority of learning institutions.
- 1 What is Personal finance?
- 2 Why do you need to learn about Personal Finance?
It may not be an interesting subject to most people, but it applies to your daily life.
What is Personal finance?
Personal finance is simply the way one manages their finances. Money is a major determinant of the kind of lifestyle you live. Lack of money disables one from achieving the many plans they may have in life. In this way, we can conclude that money enables choice. Nonetheless, it does not necessarily mean that the choices are always right. This is where the knowledge of personal finance comes in.
Knowledge of personal finance makes you financially empowered. One with knowledge of personal finance takes charge of his dreams and goals through their financial choices. They learn about possible financial opportunities and how to make smart choices when it comes to their money. Through this, they can live a comfortable, worry-free life, and this makes you financially powerful. On the other hand, one without knowledge of personal finance will always feel that their money is inadequate; you will be a prisoner of your job and your assets if you have any. Moreover, it puts you at risk of living from paycheck to paycheck, which makes you a high target of debts.
Another key aspect of personal finance is time. One who has the privilege of learning about personal finance at an early age has a greater time advantage of having more money from an investment by the time they are at their retirement age compared to one who learned about the same at a later age. However, both ways, they have more advantages than one without personal finance knowledge. This is one of the lessons from personal finance, which is investing while young.
Several areas you need to comprehend on personal finances are;
- Creating a budget and following it
- Net income versus gross income
- Retirement savings
- Debt management
- Value for money with time.
- Credit scores and good use of credit cards
- Market inflation
- Paying bills on time.
Why do you need to learn about Personal Finance?
The purposes of personal finance are inexhaustible. There are many reasons though this article features the important reasons.
Makes it possible to attain your financial needs
Money matters extend beyond what most people perceive. When thinking of money, think of it in a wider sense. It is not all about working and earning money. Think of what happens next after earning money. Does it mean we exhaust all the money? No, that should, however, not be the case; instead, always have a plan. In this plan, draw out the total amount of your income, the expenses, any current plans, and finally, the financial objectives you have for your future. If your income does not accommodate certain expenses at the time, you can sacrifice that particular thing and plan for it. This broadens your thinking on finances to handle them efficiently.
Failure to have a budget for your income will make you spend on what is unnecessary or even overspending. With a plan, it is possible to manage your finances effectively by spending on essentials and to transfer the rest to your savings.
Build your cash flow
Increasing your cash flow is another important reason why you need to learn personal finance. This happens through wise spending, planning on taxes, and careful budgeting. Taking all these into consideration ensures that you use your money prudently to avoid unnecessary expenses. It means you will always have some money left for your savings accounts; hence you will never run out of cash.
Provides financial security
Financial security is what we all hope for. Everybody wants to be financially independent in whatever situation. It is essential for those with families to protect and secure their families whenever the need arises. This is one of the primary reasons why people work hard to earn money. Financial security is something you can establish for yourself, no matter the income. Financial freedom and security come from planning your finances, making proper investments like getting into the money market, having savings, and acquiring a suitable insurance policy.
Have a better financial understanding
Proper management of your finances provides a better understanding of your finances. You know when and where to invest, you are able to set realistic goals, make the correct spending choices, and you know the impact of your choices before you make any. With this, you can take control of your finances and have to apprehend the importance of budgeting better.
Helps you avoid uncontrollable debts
Debt is a normal part of life, and well it is okay to have a few debts. However, excessive debts pose a great risk to your financial future. It is therefore essential to manage your debts if you want to grow your finances. In this way, you can be sure of a secured future. Knowledge of personal finances comes in as a key aspect to achieve this.
Debts arise when one lives a lifestyle that is beyond one income. To sustain this lifestyle, they tend to take up debts to cover the extra expenses. This grows your debt at a higher rate. In addition, these debts have interest on them which will eat up most of your income, thus preventing any financial progress. Some even take up more debts to clear the existing debts, which will make you sink further into debt.
Overusing your credit card also adds to your debt. That’s why as discussed above, this is one of the key areas covered in personal finance. Knowledge of personal finances helps you evade debt situations and learn to survive on what you have by breaking free from one of the worst financial behaviors.
Growing your assets
We all want to have our own assets, for instance, having our own home. Owned assets provide some form of financial comfort that is desirable to many. Nevertheless, having numerous assets comes with liability. Understanding and canceling liabilities is the knowledge that only comes from personal finances. Through this knowledge, you can grow your money and assets with certainty that they will not turn out to be a future financial liability. It is thus important to learn about personal finances to assess the actual value of a particular asset.
Guarantees a raise in your living standards
You may wonder how the study of personal finance can raise your standards of living. Well, as you develop good financial habits like planning for your income, you increase your savings. You can slowly purchase assets or make investments that will increase your financial value with time from your savings. Moreover, you will always have a cushion for emergency purposes that will prevent you from taking debts. Through this, it is definite that your financial worth increases over time.
How to learn personal finance
Knowledge and understanding your finances is one step to acquiring a financially stable future. With financial knowledge, you have the ability to accomplish your future financial goals and dreams, as well as take charge of your future. Even though you may be currently in a financial crisis, it is not too late to make that change. If you are financially stable, take time and understand personal finances, as elaborated in the article, so you may not regret it later.