- 15 Mar 2021
- 7 minutes
Everyone wants to learn a magic trick so that they do not have to worry about their finances. As a magic trick negates reality, we need to plan and invest our finances.
Finances are the management of money that consists of borrowing, lending, investing, budgeting, forecasting and savings. There are three types of finances such as personal finance, corporate finance and public/government finance.
Introduction to Personal Finance
Whether the goal is to meet short-term financial requirements or plan a retirement, financial planning is necessary. Every individual or household income and expenses vary according to their needs and desires to fulfil them.
Fundamentally, every individual fits into a common framework regardless of income, wealth, debt, investments, known as the four pillars of personal finance.
Four pillars of personal finance
Assets are the belongings that you can convert into money. They include your houses, bonds, mutual funds, cars. The liquidity of every asset varies, but each holds a monetary value. You can calculate your net worth by subtracting assets from debts.
Debts are outside entities that you owe. Whether it is a home loan, student loan, car financing, you need to pay them. Though deadlines are flexible, your net worth is affected by debts.
The money that you generate is known as income. The profit from investments, tax refunds, health insurances that reduces your expenses fall into income. The people above 65 generate revenues from the pension, social security and interest from investments. It takes two forms; disposable income and discretionary income. Disposable income is the residual income left after paying taxes. Discretionary income is the income left after paying for groceries and necessities such as transportation. Any remaining amount goes into saving or paying off the debt, so you should spend it wisely.
Expenses are the money used from your income. If you spend more than you earn, you will steadily increase your debt. Comparison and measurements of finance pillars will allow you to calculate your current net worth and financial standings. You can consider them as vital signs for your financial circumstances.
Why is financial literacy important?
Every day we make irreversible financial mistakes. We need to equip ourselves with essential financial knowledge and skills to manage our wealth effectively. Financial literacy forms the foundation of our success in the financial decisions that we make in our life. The lack of financial literacy is clear from statistics revealing that nearly 40% of Americans can not afford a $400 medical emergency, 50% of Americans do not have sufficient money to retire, and credit card debts reached the epitome. Therefore, financial literacy can help you in attaining your set targets faster.
How to differentiate between a good or bad company?
The financial sector consists of many banks and commercial companies that offer saving, investments and money transfers. With increasing fraudulent activities, you need to see if your hard-earned money is in safe hands. How can you differentiate between a good or bad company? Reviews can help.
Use reviews to find the right one
Savings and investments are crucial for good financial standings. It helps to withstand any emergency, and investments facilitate the growth of wealth. The investment can also make you lose your wealth if you do business with the wrong investment company. Similarly, if you save your money in a commercial company or bank that takes away all your savings is a huge loss.
The online reviews can help you decide which finance company is reliable and trustworthy for your savings and investments. The client’s opinions, complaints and experiences regarding these finance companies will aid you to choose the right one for your financial situations. Now, where can you find these reviews? ReviewsBird is an online platform that provides honest reviews about finance companies. You can read the reviews about these finance companies and decide which one can be trusted or not.
Personal finance management
Personal finance management constitutes assets management for personal economic satisfaction. It involves a plan preparation which requires the identification of priorities. Furthermore, it gives you full control over your financial footings. Every household or individual can increase the quality of their living by adopting a personal finance management process. The process involves behaviour changes towards spending, saving and investing.
When you have a habit of spending all your money then, it becomes difficult to save some for your future. Even if you drink a cup of coffee for $3 every day, you will spend $1095 a year. The spending keeps on increasing if your lifestyle relies more on purchasing things to sustain it. You can start focusing on your money right at the college level. Even if you save $1 every day, you will have $365 at the end of the year.
Budgeting is a plan for how to spend your money. For a stronger financial situation in the future, it is pivotal for you to do budgeting and strictly adhere to it. You can not do everything at the same time when you have a limited income. You need to prioritize things and spend money according to the descending order of priorities. Everyone has a personalized budgeting plan, and if you are unable to make one for yourself, you can seek guidance from financial advisors. Budgeting is a great way to avoid debts or save enough money to pay them off.
Budgeting forecasting and planning
If you become successful in sticking to your first budget plan and save money by the end, you can plan your finances for six months to a whole year. It will allow you to manage your finances for occasional expenses such as home renovation, changing your car battery or going for a vacation. Budget forecasting for a year will help you in achieving your long term financial targets such as retirement. With realistic budgeting, you can make investments, buy a recreational property or start your dream business.
Everyone knows how to spend money, but saving requires patience and practice. The emergency fund set up from savings will give ease during medical emergencies due to injury or accident. In addition to emergency funds, debts always keep you under stress. To pay 17% of interest on your credit card debt sounds awful and feels heavy on the pocket. You must get rid of your debts quickly by following six easy tips for money savings.
Investing is available funds utilization into a project, stock, bond or purchase of interest to increase money value. Today, the economic system rests on capitalism due to investing activities. When you deposit in a bank, federal deposit insurance guarantees that it is safe. However, you can not be sure that your investment will provide profit because market conditions impact the value of stocks, bonds and other securities.
Though investing your capital into assets, businesses and even a research project is a risky task, if it is nurtured according to its prospects, you can earn a substantial profit besides your regular income. Investing activities occur at individual and institutional levels, so you can gain further insight into investing activities: grow your wealth in future.
Apart from investing, you have other means to generate profit from your money which varies according to the level of risk you undertake. One such activity is speculation. Speculation is a financial transaction that poses a huge risk of loss, but if it works, potential for gain is enormous. You can earn money by speculating with online brokers over company stocks.
How to make money with cryptocurrency?
Cryptocurrency is digital money that does not have physical bills or coins. You can send cryptocurrency to anyone online without a bank in between. You can make money with it by buying coins. When the value goes up in the market, you can sell them and earn a profit. Currently, popular cryptocurrencies are bitcoins and Ether. You can trade any asset in cryptocurrency, but one should look for stable and volatile assets whose value fluctuates regularly to earn a profit. There are several ways to earn by cryptocurrency in the US, which you can know in detail.
Conclusively, your finance management starts right at your college level. Personal finance management is vital to attain your short-term financial goals as well as long-term. With a limited income, you have a small discretionary income. If you utilize your discretionary income in saving, in a few years, you can have enough money to pay off your debts and invest your money to gain profits beside your regular income. Also, you can make money by learning strategies in your field of interest, such as investing, speculating or cryptocurrency. If you do not want to take risks, you can take the help of financial advisors. With so many financial companies, you can use reviews to find the right company for investing or saving your money. The opinions and experiences will help you choose the right one for you.