Mar 02 2012
Today many people don’t have even the basic understanding of personal finance. They don’t know how to set up a budget, how to manage their money.
The main reason behind this is that money management is not taught in schools and colleges. Educational institutions create graduates who are trained for productive work under the supervision of a boss, but do not know what it involves to manage their own personal finances. Though such graduates have done many courses on finance and accounts, still many of them struggle in maintaining their own personal finances and are not able to manage money and create wealth for their future needs and obligations.
After the completion of your education, you get a new degree, a new job, and a new sense of independence. But to get financial peace i.e., what to do with money, how to manage it – you need to have knowledge on personal finance.
Knowledge of principles of saving, investing and spending money wisely avoids mistakes from ignorance
There are certain principles of money you should understand. The sooner you understand them, the fewer the mistakes you will make with money. There are people who live their entire life but never discover the principles of money, the fundamental rules of saving, investing and spending money. If you understand and follow those principles, you can avoid mistakes and you will be able to deploy your surplus properly.
Good saving, investing and spending habits help a person become financially comfortable
For this, you first need to setup a budget plan and you should by and large stick to it. The personal budget is something that helps a person control his/her wasteful expenditure. Many people simply avoid this and continue to spend wastefully. Personal budgeting helps you in improving your financial situation. An effective budgeting starts with understanding spending habits and the most important thing is to evaluate how you spend and where your money is going out.
Awareness on the purpose of financial instruments helps in taking care of your and your family’s needs
It protects and enhances your lifestyle. Not having knowledge of financial instruments will lead into financial mismanagement. It requires right decisions while using financial instruments which help take care of your and your family’s needs. Don’t invest just by seeing your neighbor, friend or relative. Understand the financial product, its performance, benefits, implications, etc.
Money does not solve all problems. But not having any money is a big problem
Many people wrongly assume that if they earn a good salary, all their financial worries will be solved. Money may not solve all your problems, it cannot buy happiness. At the same time, if you don’t have money, you cannot afford to pay for your living expenses.
Let us take an example, to make you understand money better. Money is like chutney. Focusing only on money is stupidity, like eating only chutney in your meals. Adding chutney to a meal can enhance the overall experience of the meal. Similarly, having a little money helps you have a better quality of life.
Finally, there are other things more important than money. Don’t lose sight of them
“Paying yourself with your time” is as important as money. Personal passions, personal growth, physical health and many more things can be included in this list. Having a lot of money is not the only thing in life – there are many billionaires who live a miserable life despite having billions.
Not doing what you know is same as not knowing anything. There is no benefit of knowing the principles of financial planning if you cannot execute them. You need to execute not once or twice, but continuously. When you inculcate the habit of following the fundamentals of money, you will be financially well settled.