What is Personal Finance and what does it include?
You may wonder, why personal finance is important?. I did wonder this myself when I started out and it is pretty normal to do so. Just imagine, you are enjoying your retired days by the beach sipping a pina colada. Does this sound like an ideal scenario you want to be living in? Maybe for most. In my case, perhaps I’d be working at the beach sipping coconut water. Work and health are priority after all. Even though, it is easy to imagine it, is it possible to make it a reality? I say yes. How you may ask? By becoming financially literate of course. How to become financially literate you may ask? By learning more about personal finance. How to learn personal finance you may ask? By reading Personal Finance articles on YOUR RICH FREEDOM of course! Duh! So, What is Personal Finance?.
The Personal Finance Definition as per Your Rich Freedom is “Personal finance is attaining your rich freedom by Managing of money by you to budget your expenses and spend efficiently, and at the same time save & invest your income in such a way that money grows & lasts a long time overcoming the risks involved.” I know this is long. Let me give you something short yet sweet. Personal finance is how you manage your money personally. It is the management of finance by individuals in their personal life.
For example. Obtaining a loan to build a house is personal finance. Planning for your taxes is personal finance. Purchasing insurance to cover the risk of life, disease, and unexpected accidents are personal finance. Budgeting your incomes and expenses is personal finance. You see, in short, anything that has money associated with it is personal finance for a person like you and me.
Knowing about personal finance equals being financially literate. These are not subjects that are focused on schools. Schools in most cases teach you how to get a 9 to 5 job and keep going ahead like others before you in the rat race. But you are more than that. You are special. You have to take your own road like Robert Frost’s poem, “The road not walked by”. This poem has made all the difference in my life since the time I have read it.
Imagine being able to budget effectively all your spending, knowing the best avenues to invest your money, and being able to decide the best choice of investment. Imagine being able to multiply your money faster than that fixed deposit interest rate. Remember, just divide 100 by the interest rate. That is exactly how long it will take you to double your money. All these topics here are the discussion of other blog topics altogether.
Now that you know what is Personal Finance, let us go more into what all is included in personal finance. Although the term personal finance sounds like rocket science, we at Your Rich Freedom can assure you that it is not and in fact, when you know what is included in personal finance, you will realize how easy and simple the topic is to understand. Let us get right into it.
What does personal finance include?
6. Protection (Insurance)
7. Debt Planning
8. Real Estate Planning
9. Tax Planning
The first component of personal finance is Income. Do you agree that this is important? Always focus on increasing your Revenue. The reason why I say this is because there is a limit to how much you may cut costs but there’s no limit to the income that you can bring home, except the limit of your ability and your time. Try to build a side hustle on the side to boost your overall monthly income. We will be writing more detailed blog posts on these topics.
The next component is how you spend your money. Expenses of course! It is always stressed to keep your expenses at the minimum. Avoid inflating your lifestyle so that you can save all excess money and invest it. Investing helps increase your capital and this builds your funds from which you can generate passive income. The goal of achieving financial freedom can only be reached when your passive income is big enough to cover all your expenses at the least.
After knowing about income and expenses, the next thing is budgeting your income and expenses. Budgeting for income may not be possible if you are a salaried individual. It is nothing but planning. Plan your expenses and spend based on that. Do you want to make a purchase that is huge?. Plan in advance. Have you heard of this famous saying? “Failing to plan is, planning to fail”. Now you know exactly what these words mean.
I personally love budgeting because it helps me avoid any impulsive purchases as well as help me prepare my funds for upcoming expenses. Especially when my insurances, or car service payments come up. I will be writing more detailed blog posts on this. If you have any questions, please submit them in the comments below.
Saving is the main focus. Even if you cannot increase your income, by saving most of your income, you are actually making time come in your favor. Always try to save at least 50% of your income if possible and focus on revenue maximization at all times. Controlling lifestyle inflation and only buying what you need can go a long way here. Being frugal can really help you accumulate a lot.
You need to understand that money saved must be invested so that your money can work for you. In other words, your money grows if you invest it in the right areas. But make sure you have an emergency fund in place and protection in place for unforeseen expenses. Having protection ensures you won’t have to burn your capital for unexpected expenses. I will be writing more about investing and where I invest my money and how many returns am I making per month.
You will not believe it but it is possible to get an average return of 4% to 10% in a month if you get your game right. Stay tuned and if you have any questions about investing, do not forget to submit them in the comments below!
6. Protection (Insurance)
This is personal finance protecting yourself from risks of losing your house in fire, earthquake, or other incidents, lose your vehicle in accidents, looks your life in an unexpected incident. The reason we take insurance is with the mindset that the risk may never realize but in the worst, if it does, we have nothing to worry about.
Remember though, insurance is not an investment. Never make the mistake of thinking otherwise. Insurance is a whole big topic altogether. I Will discuss and explain more about it and how you can leverage it in your personal life and business in another post altogether
Debt is only good when you can leverage it to build more income. If your money is only flowing out of your pocket but no money is flowing in, the debt taken is bad. Remember, debt does not come cheap. It has a cost associated with it. This cost is called Interest. The earlier you learn how to leverage debt into building assets, the faster you can reach your financial freedom goal. Think twice before using debt and learn how to use it effectively. I will be writing more blog posts in this area too. Stay tuned for it!
8. Real Estate
Real estate will always be valuable and that is true as it is a tangible asset that will last for generations. The secret to growing wealth in real estate investing is buying assets at below market value. In this area, you have to understand how to use foreclosures, how to increase the value of existing properties and so much more. We will be writing more about these blog topics in other blog posts. So stay tuned. If you liked reading so far, considering joining our community by subscribing below to our email list!
Are you a person who has never paid taxes? Or have you paid taxes before? I am sure you have. Taxes are everywhere, on your food, on your income, in your house, everywhere. There’s a famous saying that goes like this, “One cannot escape death and taxes”. How true is this?
In taxes, the focus is on how to leverage the tax laws to pay lower taxes. If you have a good chartered accountant, you know how much money you have saved from taxes. Legally of course!
I hope I gave an insight into What is the true meaning of Personal Finance and what it comprises of. We have kept it very short and simple just so that you are able to understand this huge topic in just a few short sentences. Achieving financial freedom. Reaching financial independence and retiring early is my goal. Is this yours? Then, you are in the right place. Use the resources in this blog to easily learn about the topic of personal finance. If you have any questions on anything at all, please put them up in the comments. I will personally try to answer all of them based on what I know from my experience and reading.