This blog covers four things you need to know about personal finance!
You don't need to be a finance expert to achieve financial stability. You only need to learn the basics aspects of personal finance and apply these to your life. Start by avoiding high-interest loans. When financial emergencies happen, trust a loan provider that offers affordable employee loans and doesn’t charge any prepay fees.
Four Most Important Aspects Of Personal Finance
1. Cash Flow Management
Cash flow management is simply how you manage the cash that comes in and out of your wallet (or bank account). It's the system for how you manage your money on a daily basis. You should know how much you spend daily, where you spend it, and make sure you don't go over-budget on any expense. Cash flow management will help you be more conscious of how you spend your money, so that you don't end up burning through your budget in one week.
How to do it: Set up an excel file or notebook where you lay down your budget and map out your expenses.
2. Consumer Debt Reduction
The average American was $92,727 in debt in 2020. Consumer debt includes credit card, retail credit card, student loans, personal loans, mortgaged, auto loans and lease, home equity loans, Home Equity Line of Credit (HELOC), etc. Managing and, ultimately, reducing consumer debt is a priority for many because it is a major key towards financial freedom.
There are many ways to reduce debt. The first method is the "snowball method" wherein you target to pay off the smallest debt. You use extra funds toward paying off the smallest debt while paying the minimum for other debts. Repeat the process until you pay off your largest debt. The second method is the "high-interest rate method" where you pay off the debt with the highest interest rate—which is more costly in the long run—and then go down the line to the debt with the lowest interest rate. Whichever method you choose, it's important to have a plan and stick to it.
3. Asset Protection
Even if you don't own much, you still should do the minimum to protect your assets. Protecting your assets saves you from potential financial devastation in case of disaster. Various types of insurance help you mitigate risk; they payout money to help you cover damages and losses caused by various disasters.
Health insurance, life insurance, homeowners or renters insurance, flood insurance, car insurance, or an umbrella insurance are the most basic types of insurance an individual should carry to protect their assets.
4. Long-term Planning
Long-term financial goals are often left unachieved because of a lack of planning and dedication. However, if you want to succeed financially, you should take your long-term goals seriously. Start by determining what your long-term goals are—debt elimination, buying a house, investing in a business, or planning for retirement? For some, defining what financial independence means for them is the first step. From there, determine the steps you need to take to accomplish these goals. Furthermore, writing down these goals and tracking your progress will help you stick to your plans.
