Hello everyone. It’s been a while, a long one. Life got in the way, and I needed to prioritize. I’m sorry for keeping you all waiting.
But then we are back up.
To the new subscribers, you are all welcome to my newsletter.
A special shout-out to of (if you’re in your twenties or not, subscribe to her newsletter)
As a reminder, this newsletter tackles personal finance, investing and other ideas I find exciting.
That said, let’s get back to basics.
Personal Finance 101: A Guide to Building Wealth
Personal finance can be overwhelming and confusing. However, it is a crucial aspect of your life that you should not ignore. It is essential to manage your finances wisely to build wealth and achieve financial stability. In this guide, we will go over the basics of personal finance, including budgeting, saving, earning, investing, and protection. In the following issues, we’d go deeper into each of them.
Personal finance is the management of an individual’s financial resources through budgeting, saving, investing, and planning for retirement, among other things. It’s about making smart choices with your money to achieve your financial goals and build wealth over time.
Why is Personal Finance Important?
For starters, it is essential because it enables you to manage your money wisely, build wealth, and achieve financial stability. By following a budget, saving, earning, investing, and protecting your wealth, you can achieve your financial goals and live the life you want. Personal finance allows you to make better financial decisions, avoid debt, and prepare for the future, whether buying a home, starting a business, or retiring comfortably. The feeling you get when money is not an issue is unparalleled.
Personal finance is personal because everyone’s financial situation is unique. What works for one person may not work for another, which is why it’s essential to develop a personalised plan that takes into account your income, expenses, goals, and risk tolerance. For example, someone with a high income and a lot of debt may need a different strategy than someone with a lower income but no debt. Since no two people are the same, every financial plan should reflect the intricacies of the owner.
The Major Blocks of Personal Finance
The major blocks of Personal finance are:
Earning
Budgeting
Saving
Investing
Protection
Earning
There are usually three stages of income generation: exchanging money for time, earning through previous effort (passive income) from investment, and income from events such as the sale of a product, commissions, etc. To earn money, you must create value for people in exchange for money. Value can be created through the following:
Exchanging your time for money by selling your skills or services.
Creating and selling products.
Building an audience and monetising.
Budgeting
Budgeting is the foundation of personal finance. It is the process of creating a spending plan that aligns with your financial goals. To create a budget:
Track all your expenses and income for 30 days.
Differentiate between your needs and wants.
Write them down.
Choose expenses that aren’t important and reduce spending on them, the leftover you save.
By following a budget, you can avoid overspending and make better financial decisions. Budgeting gets a bad rep, but it isn’t bad. It simply shows you where your money is spent.
Saving
Saving is another critical aspect of personal finance. It involves putting money aside for future use. Open an account that you won’t have to dip into during an emergency and pays a return higher than inflation. Keep contributing there for 90 days, then take it out and invest and continue the cycle.
Investing
Investing is a crucial aspect of personal finance. Investing involves putting your money into assets that have the potential to grow in value over time. The reason you invest is because the return you get from saving is negligible, and inflation erodes the value of the money you have. Therefore, investing allows your money to gain more value than if it was sitting in the bank and prevents inflation from eroding its value.
You should choose your financial goals and use your time horizon to determine the assets you should invest in. Allow your investments to mature to reap significant returns. Never invest in what you don’t understand. It is essential to diversify your investments to spread the risk and minimise losses.
Protection
Protection is another critical aspect of personal finance. Protection involves taking measures to protect your wealth from unforeseen events. Insurance is one way to protect yourself and your family from financial disasters. Other ways to protect yourself and your wealth include:
Not getting too greedy.
Having an emergency fund.
Diversifying your portfolio and maintaining a healthy lifestyle.
In conclusion, personal finance is an essential aspect of your life that you cannot afford to ignore. By following a budget, saving, earning, investing, and protecting your wealth, you can achieve your financial goals and build wealth over time. Remember to always live below your means, focus on increasing your income, and avoid trying to keep up with the Joneses.
See you soon..