Introduction
Last week, I concluded my Productivity series, and now it’s time to dive into a new topic: Personal Finance.
Why I decided to write about this: I struggled with my own finances in the past and was not really taught how to handle them. This is a way for me to share what I know and applied to help assist you guys as much as possible.
This series will be longer compared to the previous one because personal finance is a crucial subject that everyone should be aware of (I’ll still be using some concepts from the previous series if they apply).
Managing your financial resources is key to achieving goals like saving for retirement, paying for education, purchasing a home, and ultimately attaining financial freedom (no, you don’t have to be a trillionaire, but more on financial freedom later). Unfortunately, many people underestimate the importance of financial management and fail to plan for their future. In this blog post, I will cover the basics of personal finance and provide some tips to help you embark on your financial journey.
The Importance of Personal Finance
The sad truth is that formal education often neglects personal finance. An 18-year-old may take on significant debt to pursue a degree without realizing the potential consequences. I, myself, had made some big purchases and blew up my savings that I regretted in the past. Personal finance is crucial because it enables individuals to make informed decisions about their financial future. It empowers you to plan for your goals, anticipate unexpected events like job loss or medical emergencies, reduce debt, increase savings, and improve credit scores, which opens doors to better financial opportunities.
The 5 Levels of Financial Needs
Level 1: Basic Cashflow and Fundamental Needs. Your primary income should cover essential expenses such as food, rent, utilities, and more.
Level 2: Safety Nets. Once your basic needs are met, it’s time to plan ahead. This involves budgeting and eliminating debt. Repeat this sentence: “I must get rid of my debt as fast as possible.” At this level, you also need to save for emergency funds to handle unexpected circumstances like job loss or medical emergencies. This level can be challenging, requiring diligent work on tracking expenses, budgeting, and saving. Most people don’t get past this level.
Level 3: Accumulate Wealth. Congratulations on your hard work! Now, with some extra cash in hand, it’s time to invest wisely (no get-rich-quick schemes you find on the internet). If you’re a full-time employee, consider participating in your company’s 401(k) plan. Freelancers can invest in Individual Retirement Accounts (IRA) and Roth IRA accounts.
Level 4: Financial Freedom. After putting in the hard work to manage your finances, it’s time to enjoy freedom. But remember, you still need to maintain financial discipline. At this level, you should cover all your needs, savings, and investments. You’ll have the freedom to choose your work, lifestyle, and where you live. Want a taste of freedom? You can try this: negotiate to work from home (make sure you work diligently though!) for couple days of the week then see how it feels. After that, imagine your life with financial freedom.
Level 5: Legacy. This level is for those who want to build their own empire. It involves real estate and business succession planning.
Some Tips for Managing Your Finances
Managing your finances may feel overwhelming initially, but there are simple steps you can take to get started:
Create a budget: Track your income and expenses to identify areas where you can reduce spending and increase savings. Also, remember these wise words:
“Beware of little expenses. A small leak will sink a great ship.” — Benjamin Franklin
Prioritize debt repayment: Focus on paying off high-interest debt, such as credit card balances, to avoid accumulating more debt.
Invest for retirement: Consider contributing to retirement accounts like a 401(k) or IRA to secure your financial future. Seriously, go ask about 401(k) from your company. Most likely they will match a certain percentage for your contribution. In simpler words, it’s free money in your retirement account!
Conclusion
Personal finance is a crucial topic that everyone should prioritize. By managing your finances effectively, you can plan for your goals, prepare for unexpected events, and improve your financial opportunities. The goal is ultimately to achieve financial freedom! Remember first to create a budget, prioritize debt repayment, and invest in your financial future. With these tips, you can take control of your finances and achieve your financial goals. Stay tuned for more insights and practical advice on personal finance in future blog posts!
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