Introduction
If you are a teenager hanging in your college years, then you may have noticed this thing:
“Your savings transform into nothingness and you do not even realize how you are spending your money.”
If this has happened to you, then you are definitely not alone.
Most of us knowingly or unknowingly try to waste almost all of our money to either impress our friends or specifically the opposite gender.
In this beginner guide to personal finance, I want to teach how you can avoid losing money and instead start growing it through some simple yet actionable tips.
Let’s begin.
What Is Personal Finance?
First things first.
Personal finance is the process of keeping a keen eye on your money and how you are using it.
In short, it is a type of financial management done by an individual or a family to maintain a clean spending track for clarification.
Many people confuse personal finance with maintaining complex paperwork and hiring a chartered accountant to make balance sheets and profit and loss statements for you.
In reality, is the exact opposite.
Personal finance does not require any app or an assistant.
You can do it anywhere and at any time.
Debating on whether to buy a packet of chips or save money is also a great example of personal finance.
With that, you might have got a cold glimpse about personal finance.
It is mainly used to limit your purchasing power positively to make better use of your money.
Decent personal finance includes three rudiments to make it successful.
They are:
- Budgeting
- Saving
- Investing
Let’s discuss them one by one.
3 Important Aspects in Personal Finance
1. Budgeting –
Budgeting is creating a daily, weekly, or even monthly spending plan to minimize and track the amount of spending.
Some of its major benefits:
- You will become alert about the useless things that cost the maximum money.
- Your decisions will start impacting the long-term scenarios instead of the short-term gratification.
- You will eventually be able to buy your dream stuff by avoiding spending on things that add no value
- And much more.
With budgeting, you are somehow saving money but with a little more freedom by not being a stoic.
You can create a spending plan from petty expenses to large ones.
Currently, you can maintain your spending records all in one place.
I prefer using a life savior tool called NOTION.
With its easy-to-use interface and beginner-friendly features, you can do all sorts of things from planning to executing without writing a single line of code.
I likewise manage my monthly expenses in NOTION and it’s super convenient.
It’s free.
Besides Notion, you can use other alternatives that suit you.
However, your main goal should be planning your spending life and analyzing it on a timely basis.
That brings us to the next step.
2. Saving –
Saving is mostly similar to budgeting.
The only difference lies in the planning part.
Here, you do not necessarily need to plan things beforehand.
You can save money, for example, by not buying a smartwatch that you were longing for a while but is a liability.
In budgeting, the main purpose is to track expenditure.
On the other hand, in saving, the main goal is to stop the money outflow as a whole.
Put another way. Spending on nothing but an asset.
The main benefit of saving is that your savings help treat that money better in case of an emergency.
So, instead of buying a new iPhone, that saved money can be very helpful in some extreme cases.
In the end, it all comes down to a matter of choice.
And if you have started saving some money, it’s the best time to grow that money instead of locking it into your closet.
3. Investing –
You might have heard of this evergreen phrase – “The penny saved is a penny earned”.
I agree with it to some extent.
But after a point, it is useless.
You cannot grow your money and beat yearly inflation just by saving money.
So what do you actually need to do with that saved amount?
Invest it.
Now, I am not talking about speculating on penny stocks in the stock market. I am rather saying to VALUE INVEST.
Value investing is the process of long-time investment in the fortune blue-chip companies.
This method is used by the greatest investors of all time including Warren Buffet and Charlie Munger.
If you are at your young age, you can start taking some calculated risks. In this case, you can invest in stocks, crypto, funds, etc.
But if you are an elderly person surviving on the pension, you don’t want to take risks and lose all your money.
Here, you can choose to either go with the bank deposits or the mutual funds whichever feels safe to you.
Pro tip: Only invest the amount of money that you can afford to lose.
But before starting investing, you should always learn at least the basics about it to avoid future failures.
These were the three main steps in personal finance in which budgeting being the main preference as everything starts from there.
I bet, if you start following these three steps from today itself, you will start getting positive results in no time.
Personal finance is not mandatory but it should be a part of every successful person’s list.
According to Tim Ferriss (The New York Times Bestselling Author), a common man can enjoy all the riches without earning more money.
He points out in his book “The Four-Hour Workweek” that solid financial management can help you visit your dream places under a flexible budget.
If you wish to learn more about that, make sure to read his book.
It’s an absolute goldmine with countless instantly actionable pieces of advice.
Conclusion
This was the complete short and sweet beginner’s guide to personal finance.
Hopefully, you learned something new from this article.
Personal finance is not as hard as people portray it to be.
With proper knowledge and a pinch of common sense, anyone can apply it and follow it successfully.
It was all up to me.
Now, I would like to hear from you.
Have you started financial planning and if not yet, then what are the main barriers in your way?
Let me know by leaving a comment below right now.
And most importantly, read books related to personal finance to increase your understanding of the same.
