Personal Finance is the idea of managing your money, in addition to saving and investing. The concept incorporates how you manage your finances in both the short and long term. It includes aspects like earning, saving, investing, and spending money.
Personal finance also deals with the financial decisions one has to make in life, like taking out a loan, buying insurance, etc. In other words, personal finance is all about reaching your financial goals, whether it’s retirement planning, personal financing planning, or saving for your children’s college education, for example.
How you craft your personal financial planning highly depends on your financial literacy. In this article, we’ll explain the do’s and don’ts of personal financial planning and the best personal finance advice you can follow.
What is Financial Literacy?
The first step to sound personal finance planning is to increase your financial literacy. If you don’t understand the basics of personal finance, saving, and investing, it will be very difficult to make sound decisions with your money.
There are several ways to improve your financial literacy. You can start by reading books or articles on the subject, taking a financial literacy course, or working with a financial planner. Once you have a good understanding of personal finance, you can start creating a plan.
You can increase your financial literacy by getting a traditional finance degree, reading blogs, watching Youtube, or reading books.
A note on traditional education… it was not created to teach you financial literacy, it has been created to produce employees. After achieving a Real Estate Bachelors and Masters Degree I realized I still had a long ways to go in my financial literacy journey. Below I have included a list of 8 books that got me headed in the right direction post grad:
The Power of Broke is about using the lack of resources to your advantage. The book is divided into three sections: The Mindset of a Hustler: How to think like an entrepreneur regardless of your circumstances. The Mechanics of Getting Started: How to turn your ideas into actionable plans and get things done. The Power of Fear: How to leverage the emotion of fear to your advantage.
Think and Grow Rich by Napoleon Hill is a personal development and self-help book written by Napoleon Hill and inspired by a suggestion from Scottish-American business magnate Andrew Carnegie.
The book was published in 1937 during the Great Depression. It remains the biggest seller of Napoleon Hill’s books, having sold more than 30 million copies worldwide.
The Cashflow Quadrant is a classification system that Robert Kiyosaki created in his book Rich Dad Poor Dad to explain how different people earn money. The quadrant is based on the idea that there are four ways that people make money, being employed, self-employed, owning a business, or investing.
The book is kind of a continuation of Kiyosaki’s famous book Rich Dad Poor Dad.
Rich Dad Poor Dad was written by Robert Kiyosaki, and it talks about the story of his two dads, one rich and one poor. The book goes on to talk about each dad’s different philosophies regarding money.
The book tries to teach its readers that if they want to be successful in life, they need to think about money differently than most people do.
You can also check out Kiyosaki’s Platform to learn more about personal finance philosophy in your personal finance education journey.
I Will Teach You to be Rich is all about managing personal finance, understanding money, and using it to achieve financial goals. It covers topics like automating your finances, investing, and saving money.
The Automatic Millionaire helps readers understand personal financial management and how to save money automatically and become millionaires. It covers topics like automating your finances, investing, and saving money.
The Millionaire Next Door is a book about how most millionaires in America are not the flashy, rich people that we often think of, but rather they are people who have made smart financial decisions and have built their wealth over time.
The Financial Diet is another book on our list that helps readers understand their personal finances and spending habits and how to change them in order to save money. It covers topics like budgeting, goal setting, and investing.
Financial Literacy & Setting Goals
What do you want and how are you going to architect your goals to get there. You need to have a clear idea of what you want to achieve with your money. Do you want to retire early? Save for your children’s college education? Build up an emergency fund? Do you want to do it in 5 years or 35 years?
Your goals will dictate how you save, take risk, and approach investment opportunities. For example, if you want to retire early, many will say you need to save more aggressively and invest in growth-oriented assets. The amount of risk you take should match the amount of responsibilities and liabilities you carry.
If you have children, college debt, credit card debit and a mortgage and you’re saving for your children’s college education, your risk tolerance may be subject caring for those variables before considering investment opportunities.
On the other side of the spectrum, there is your post college kid living in the basement, pouring his every last dollar into leverage trading crypto meme coins and posting on his YouTube channel. This side of the spectrum has very little to lose and can tolerate much more risk.
What ever side of the spectrum you are on, I want to share with you 10 of the most important questions an Entrepreneur asks themselves:
- What are my current liabilities? (food, rent, etc)
- What are my future liabilities? (Food, mortgage, family expenses, etc.)
- What cash flow what is my current and future cash flow needs?
- What business do I need to start to meet that future cash flow?
- Can I really rely on my job to meet my future cash flow needs?
- How much extra cash and time do I have now to spend on educating myself?
- Can this future cash flow I build operate without me or be sold at a multiple in the future?
- Do I realistically have the time and capital to buy or start this business?
- Do I want to live an ordinary life or and extraordinary life?
- Do I want to control my own time?
If none of these questions motivate you, that is just fine. Playing it safe with a well paying and steady job is a route proven my billions of people every year. You are the architect of your own life.
The third step to personal financial planning is creating a budget. A budget will help you keep track of your income and expenses to ensure you’re on track to reach your financial goals.
To create a budget, start by listing all your income sources and then all your fixed and variable expenses. Once you understand where your money is going, you can start making adjustments to ensure you’re staying on track.
There are many things you can do to create a budget. Here are a few important steps you should follow:
1. Build an Emergency Fund
If you’re always late behind your bills, an emergency find can save you when you least expect it. You never know when your car will break down or when you spill coffee on your computer; therefore, building an emergency fund is a no-brainer in financial planning, and a safety measure to keep yourself from drowning in unexpected mayhem. It can also be extremely helpful for your retirement planning efforts.
2. Pay Off Debt
Debt is the enemy of financial planning. However, we’re living in an era where it’s hard not to do it. Still, if you want to hike your financial security, make sure you pay your debt first.
Planning to pay off your debt can be challenging. However, every financial advisor in the US will advise you to pay off debt as soon as possible. Start with high-interest debt first since this type of debt can quickly wreak havoc on your finances.
3. Healthy Credit
If you are in the US, debt can be a great way to start entrepreneurial ventures, get into real estate, or invest in assets you believe in. Basically, if your credit score is where it should be, you have a business you have started and all you need is seed money, banks will line up at your door to give you credit cards for your business. No revenue, business plan or proof of funds needed.
Is this a little crazy, yes, but what is even crazier is they will give you this money at 0% for 12-18 months.
Many entrepreneurs have been using this as a way to seed their business in the US. If you are looking for a way to optimize your credit score, see if this is for you or think you business could benefit from 50k-200k of business credit see our 0 Percent link in the video description. This is an example of how narrowly focused you can get into personal finance but let’s get back to some of the basics…
4. Saving and Investing
The fourth step to personal financial planning is saving and investing. This is where you’ll put your budget into action and start making decisions about how to best use your money.
There are many different ways to save and invest but lets get real honest for a quick moment. Let’s take a step back and realize who is incentivizing you do what with your money…
A financial advisor is incentivized to have you choose traditional financial vehicles like stocks, bonds, index funds, mutual funds, 401k or IRA’s.
The banks are incentivized to get you to open a savings accounts, credit cards, mortgages, and process payments.
Real estate agents are incentivized to get you to buy a home or investment property.
I am incentivized to keep you captivated enough in this video to keep watching and follow my affiliate links.
What you must understand is that people are not always selling products they believe in, even if they are deemed good investments. Be wary, trust your gut and do your own research.
As you read these books and follow the wealth building guru’s here are a few principles you may see repeated:
- Find a mentor- If you plan to invest in crypto find a few leaders in the space and devour their content. For instance if its crypto you are interested in follow Bitboy Crypto’s Youtube channel, or get Jeff Seekinger’s crypto investing course. If it’s real estate, you are likely to find Grant Cardone or Rod Khleif. Find a mentor and with the way social media is these days, other mentors will present themselves
- Invest in yourself. We could sit here and talk about stocks, crypto and real estate that will explode over the next 10 years but for most of us that is not the first investment we should be making. The first investment we need to make is into our own education. With knowledge comes freedom. If you can teach yourself to sell, start a company, or develop a trade, you are no longer a slave to you 9-5, you have options.
- Have A Damn Plan and Stick To It. So many of us are drifters. We just sit around, work our jobs, and hope. We hope that the stocks we invested in will pop one if these days, we hope that a raise in pay will come soon. Let’s flip this mentality on its head and stop drifting. Take the number you and your future family will need. This can be a monthly cash flow or lump sum. Take that number and reverse engineer how you will get there. Create a plan, and then as Grant Cardone suggests, 10x it. When you fall short of that 10x plan you are likely to land right where you need to be.
5. Reviewing And Revising Plan
Your financial situation will inevitably change over time, so it’s important to periodically revisit your goals and make sure your plan is still on track.
For example, you might need to adjust your budget if you get a raise or experience a change in your income. You may also change your investment strategy in peaks and valleys of economic cycles as you swim with the wales.
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Personal finance is an important subject, and it’s crucial that you take the time to understand the basics. By following these five steps, you’ll be well on your way to understanding a reaching the financial freedom you find necessary.
If you experience a significant life change, such as getting married, having a child, or losing your job, you’ll need to adjust your plan. And even if nothing changes, regularly reviewing your goals and budget is an excellent way to ensure you’re still on track.
No matter what your financial situation is, personal financial planning can help you make the most of your money. By increasing your financial literacy and creating a plan, you can put yourself on the path to financial freedom.