So, knowing that, you got to ask yourself, just how much have you prepared NOW to live comfortably in the next 20 to 30 years? Another thing you need to know is that whole life will usually have a longer coverage term, as being stated in the name “whole-life”, as compared to “term-life”. Personal finance education is an important aspect that enables people to demonstrate personal responsibility for their finances. But if you’re looking to invest in one, know that the savings rate will impact the face value of the bond. Hence, for the past 3 years, she’s been paying interest charges every, single, month. Had I known the amount of management fees I had been paying all these while, I’d go for robo-advisors and pick my own funds that I’d like to invest in. We’ll go deeper on risk management below but for now, know that personal finance is not only about budgeting, spending and making money. I have a sheet of 50 money-saving tips and you can grab it for free here. This is how I started and they did really help me in at least a section of how I manage my money today. If you try to do it and somehow got caught by the IR people, you’ll have to have to pay a very hefty penalty. Now that you have a basic idea of life insurance, it’s time for you to understand general insurance next. I personally track and budget my expenses using a spreadsheet here. So now you know some of the main importance of personal finance, it’s time for you to understand the basics of personal finance that can help your life all around. I thought I didn’t need it because I’m already cool with my spreadsheet – but I was totally wrong. This financial … When you have the money and energy, you don’t have the time, and well, when you have the time and energy you’re more likely not to have money. taking into account the inflation every year, calculate how much you will need to have when you start your retirement phase, in order to live off your life expectancy’s age? This can come back to your life insurance as well as your medical insurance. You can also read my post on benchmarking your wealth here. These funds will then be something you and any investor alike can invest in. … One thing I might want to add here is that it’s totally up to you if you want to play everything safe, meaning that you’ll do a checklist to get your finances in order, like how Dave Ramsey teaches in his book “The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness”. Yes, I know almost every personal finance book out there already tells you to get your emergency fund sorted, as you should. Schools don’t teach students how to invest or save, and money is a taboo subject in most social circles. But I hope this will guide you to start. Below are examples of different investments you can start: This is basically when you want to also become a part of the company. I want to break the life triangle chain as soon as possible and be able to work on things that I enjoy. Check out the link here to view all products that CIT bank offers and I can assure you that it’s one of the best rates to be compared with other banks. Will you need to set up a trust? Too much debt, though, is usually a recipe for disaster. How do you avoid estate tax? Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! Please always remember there’s no price tag to your life. Well, investing in real estate has been a pretty hot topic since well 2008.. (see if you get me). Anyway, here are the things you need to understand so you will know why a lot of people (me included) has been telling you to get your finances together. When you have the time and money, you don’t necessarily have the energy. Securities offered through LPL Financial, Member. And to me, it’s called financial freedom. When it comes to investment, my advice is to stick to what you know and understand first right now. Before we start, let me ask you a question – do you agree that personal finance should be taught in schools? If you have a family, how can you make sure they will still have the same lifestyle if you were not here? Females tend to outlive males, by the way . Even if you don’t participate, your premium will be more expensive than a term life plan. So that you won’t be tempted to use all the cash at one go AND make sure you have some risk management if there’s anything to happen to your cash. As Robert T Kiyosaki mentioned in his book “Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!”, things that are being taught right now in school will definitely help you to become a good employee – but not necessarily good with money. But if nothing happens, then you won’t get back your contribution. No BS. #YOLO can be nice to make sure you’re never missing out on any experience just for the sake of saving money. Banks are clever and they are run to be profitable. If you don’t think it’s life-changing like I did, you can cancel anytime during the free trial. Though it is enticing to buy shares in blue-chip companies, the price isn’t exactly the most affordable. You work hard for your money, so why shouldn’t your money work hard for you? Go on the internet and list down everything. Savings is to make sure that your money is beating inflation so that it won’t erode your purchasing power while investing is to make sure your money is working for you, giving you even better returns. But this is better because you’ll be trying to find ways on how to protect your money. It doesn’t cost a lot and you can get it up and running in 5 minutes. To understand why personal finance is so important, you have to first know what is personal finance. Importance of Personal Financial Management. However, in order for you to access different sections, you usually need to pay for their services. Anyone can save money by stuffing it into a mattress until they need it. Similar to what I have mentioned with funds, REIT is made up of real estate companies that produce income from their properties and that income will be distributed back to you (if you decide to invest with them) from their high-yield dividends. And if the Internal revenue people come knocking at your door, you’ll have the statement ready. There are 2 different types of insurance you’ll need to know: Life insurance is basically a value-based contract on how much you “deem” yourself to be worth. Money and Security Needs. Or worse, they may be distributed without regard for your wishes. Just remember that every penny counts. You will usually look at bonds when you’re nearing the retirement age since it’ll give you a fixed income from its coupon payment. I’m a millennial, so I resonate with this very much. By keeping a budget, you’ll be able to stay on track with your financial goals without sacrificing the things you enjoy. Having good personal finance can help that. ETF doesn’t have high fees because you can easily buy and sell on exchange online but also due to that, you might have the tendency to trade your funds a lot more and will incur more transaction fees. You might need some help to calculate all of this. I know some financial coaches charge about $500 for an hour of consultation call. If you’re trying to save more, find out a few ways to reduce your expenses. They will usually compete with each other. Or you’ve calculated your expenses and know exactly how much to prepare and buffer. With a strong personal finance background, you’ll learn how to get out of high-interest debt and create a game plan for avoiding it in the future. I’d really recommend checking out Tiller Money and get their free trial. Learning about personal finance will give you freedom in your life and the ability to accomplish your … And have you ever wondered who makes it compulsory to do tax filing every single year, but this topic has never even been touched in schools? Save my name, email, and website in this browser for the next time I comment. Bond is considered one of the low-risk investment that you can do. property investing to be different than buying property for your own stay. In business, if you spend more than you make, you’ll quickly find yourself looking for a new career. Have you diversified your portfolio yet? Unlike learning a language, personal finance knowledge is always evolving due to changes in monetary and fiscal policy in each country. Build a good credit or use a credit card wisely. It will help to protect yourself from unnecessary fees and any shady business given by agents. When you keep track of your expenditures and your spending patterns, you can easily be … It’s about your risk management. Good financial management is necessary not only to achieve long-term goals; it's also important … Also related: Top 10 Best Investing Books For Beginners To Read This 2020. No Excuses. If you have a savings account, does it have a competitive interest rate? © 2020 ThatMillennialGirl.com is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com. Once you know how much you usually spend in the main categories: You will now need to allocate a budget to all those categories. Even on the interest rates, sometimes they can use different terms such as the nominal rate or the real rate of returns – when they can obviously use a standard term for easy comparison. When it comes to investment vehicles, in layman’s terms, a fund is a bundle of different shares. Because I don’t think I’d want to be in retirement. You’d know how much you’ll be able to spend every month on the balance after you’ve paid all your bills. Many Americans are drowning in different types of debt. Investment-linked is pretty straight forward based on its name. An index fund is basically following the market trend of the top companies on the exchange. If #YOLO has been your motto in life, this is the time for you to change and start thinking about your future. If you’d like to know more about how to pick the right company to invest in, you can read my guide here on fundamental analysis. I do think at times they are just trying to confuse us. Everyone is supposed to have personalized budgeting based on their financial situation. The activities can help you to be a more financially responsible person and … Find out whether the interest rate is compounded daily, monthly, or yearly. So, let’s jump onto why it’s important to learn about money and become financial literate. Knowing that your money is in a safe place, being consistently invested for things you want is something you’d want to strive for. We only have a finite number of high earning years, and running out of money simply isn’t an option. We hope you better see why personal finance is important and how it helps us in many different ways. There’s also Index Fund and this is considered the low-cost fund, You only really need to focus on these 4 areas, Broke Millennial: Stop Scraping By and Get Your Financial Life Together, The Intelligent Investor: The Definitive Book on Value Investing. So, because of all these things that are lacking in our current education system, we need, we must go and explore what needs to be known and done when it comes to personal finance. I get you. There are a few things you need to know about ETF. But if you’re thinking of investing in a property for your own stay, read my guide here on renting vs buying a house. Now that pensions and tax-advantaged accounts exist for Americans, retirement can be a real goal as long as there’s a financial plan in place. Another reason why personal finance is essential is that it can help you to increase your cash flow. figure out an investment vehicle that you can put down now, in order to meet the amount you need when you retire. There’s also Index Fund and this is considered the low-cost fund – and I highly recommend you guys to get this first, for its very low fees. Just a 6-Week Program That Works. For instance, you might consider a low-interest business loan or a mortgage on a house “good” debt. Have you ever really thought about your retirement? What comes in will go out. However, personal finance is still an important topic to master in order for you to pursue your financial goals. A lot of people will still buy blue-chip companies because they’ve been known to usually being profitable year after year. The formula is the same as savings formula, by the way. But there’s a limit to how far an emergency fund can help us. If there’s a relief for self-employed then list down what they are and how much relief will be given. List down all your sources of income. It addresses the ways in which individuals or families obtain, budget, save, and spend … It’s not for you to get gains but basically to help you get back to your original financial status before you incur any losses. If you’d like to learn more or need assistance creating a financial plan that suits your needs, contact the team at Good Life of Mount Pleasant today. I always recommend to first track your expenses before committing to any kind of budgeting because it’s very easy for you to yo-yo your financial diet once you underbudget for certain categories that you tend to spend the most. This is the reason why I’m saying financial knowledge is a necessity for everyone so you won’t make my mistake. Literally everything. We’re ready to help create a personalized plan for your specific needs. If you like this type of budgeting, I’d really recommend reading Ramit Sethi’s book “I Will Teach You to Be Rich, Second Edition: No Guilt. Therefore, the return will also be less. One way to avoid the pitfalls of overspending is to create a budget. My advice is though not to withdraw the money at one go. Unfortunately, most households don’t treat their finances like a business, and their spending is far more than their income. If you find the post helpful, please share it around! Look at S&P 500 performance from 2010 to 2020 – it’s seen 13.6% positive returns. Our main point here is to avoid any unnecessary fees, guys. And if you’re interested, you can definitely grab a copy for free. In other words, if you’re expecting to live till the age of 100, how much money you need to have at the age of 61, in order to live off for the next 40 years. I couldn’t possibly put and write everything here but I will create more posts in the future that will explain more in each topic for you. She’s been in credit card debt for the past 3 years and she thought she’d only need to pay the minimum balance and she’ll be off any fees or interest – wrong. There are 4 main types of life insurance: Term life is considered the most basic life insurance out there. Why is Personal Finance Important? One thing that I’d wish someone would tell me back then was just how much I’ll be paying in management fees. You will also have more money in hand to purchase a bond that has a higher face value. List down all your periodic payments and create a sinking fund for it so that you’ll always be able to pay them on time and NOT with your emergency fund. Many of us didn’t grow up with a structured financial class or program when we were at school. Once you get your money to work for you, you’ll be able to focus more on time and energy – and what you can do with them. Why is personal finance so important? Have that number in mind. It is the financial management which a person performs taking into account future life events and various financial risks. This is so you will be able to deduct a lot of expenses that you incur during your business operations. I’m including this here because I know that not everyone knows how to read a credit card statement, what more a loan agreement. Even if you’re going for your own business now, it’s to have a better-looking future. #1. But in this logical and rational calculation, you’d need to take into account how much you’ll be leaving behind should something happens to you. Not that it’s bad, but I want to trade more when I have the money to lose. Help in Managing student loans. People who are not really looking to save more money because they know they have contributed enough for their insurances, savings, and retirement. And I couldn’t agree more. Are these tax-friendly? However, if you look at how the rich and wealthy live their lives, they are not doing those things that are being told in the book. This includes budgeting your money right that will contribute to your savings and investments. Once you get your salary, you’ll be paying all your bills (preferably on auto-deduct) including your savings, insurance, and investments. Index fund has also been known to stand the test of time. Spending more than you take in means racking up debt, and consumer debt can be expensive, especially if it’s on credit cards. The importance of making a budget is a financial lesson that cannot be overemphasized. On the opposite end of the spectrum, you can always shoot for the moon and invest your savings in stocks. This could be where you keep your emergency fund or other savings that you may have like a down payment for a car or a vacation at the end of the year. The goal of personal finance isn’t to amass large sums of money—it’s about getting more mileage out of the money we earn. Estate is basically your assets once you’ve passed away (touchwood!) Remember that bond is probably the least risky investment out there. Again, depending on what kind of “bundle” a fund is, will dictate how risky it is. It’ll take you some time, and at times you feel like you want to throw in the towel. It is to help you from your financial losses but not to give you any kind of gains. If you opt to participate, then prepare to pay a higher premium. Personal finance courses usually cover topics such as investing, saving for retirement, and maintaining good credit. A Book of Practical Counsel (Revised Edition), Top 10 Best Investing Books For Beginners To Read This 2020, Getting more income, especially when you’re no longer able to work. To answer the question, “Why is personal finance important”, many educators and policy makers are able to cite academic studies along with reports produced by financial education foundations. If you deprive too much of your finances at one go, it’s very easy to feel demotivated to stick to your budget. Good Life Financial Advisors of Mt. The best is daily so that it won’t take a year for your money to be compounded. If you don’t want to be in the same shoes, learn personal finance. Our money and effort that we put into our lives NOW are mainly to support our future. This is the simple rule of indemnity. Got into an accident and your emergency fund can barely pay the medical.... 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