6 Personal Finance Lessons I Wish I Had Learnt Earlier In Life

1. What is Personal Finance?

In simple terms, personal finance means how you make your money, how you spend your money, how you keep your money, and how you grow your money.

Of course, you’d need to plan how you make, spend, keep, and grow your money with much care so as to:

Meet your basic needs – food, housing & utilities, transport, clothing, insurance, and interest payments for debts owed.

Deal with the unexpected events in life – retrenchment, critical illnesses, loss of ability to work, business failure, and so on.

Achieve your desired goals – travelling around the world, best education for your children, a beach house, etc.

And how you make, spend, keep, and grow your money fall under Rich Dad Poor Dad’s four quadrants of Income, Expenses, Assets, and Liabilities.

So, in essence, to manage your personal finance, you have to manage these four quadrants of your financial life.

If you have a family, plan your finances together with your family. It works best if every household member plays a part.

2. The Importance of Managing Your Personal Finance

Human beings have a natural tendency for instant gratifications. We always justify these gratifications with reasons such as “I’ve worked hard, so I deserve to go for a holiday”, “Who knows what might happen tomorrow? I shall live for the moment”, “I really need this pair of shoes to match my pink dress”, etc.

There is no lack of such justifications. In fact, with just a little creativity, we can always come up with 101 reasons to justify our own spending behaviour.

This is the main reason why we always find our money disappear without a trace no matter how much money we make because we simply spend, but never track.

Hence, you need to prudently and diligently manage your personal finance by managing your income, expenses, assets and liabilities in order to meet your basic needs, deal with unexpected events and achieve your goals.

However, if your goal were to achieve financial abundance, you need to do more than manage your personal finance. You need to manage your money the rich way.

I’ve written another article on this topic and you can click on the above link to read it.

3. Take Responsibility In Securing Your Own Financial Future

One of the biggest lessons in life I’ve learnt is to take 100% responsibility for your own life – your career, your relationships, your personal goals, your health, and of course, your finances.

It is understood that financial planning is a time-consuming and frustrating activity, and it does require some skill. This is the reason why you may have considered or have already outsourced this responsibility to a professional financial adviser.

However, it is not advisable to leave the responsibility entirely to a professional because nobody will care about your money more than you do. Nobody will care about making you financially free more than you do.

And also, no millionaires in the world achieve their millions by abdicating this huge responsibility to someone else, no matter how professional they are.

You are the only person responsible for the quality of life you live. You are the only person responsible in producing every result in your life.

If you really need help in managing your personal finance, employ a mix of ‘do-it-yourself’ and some professional management. You have to have a hand in managing your own personal finance.

4. How to Get Started

In order to get from where you are to where you want to be, there are two things you have to assess: 1) Your current position, and 2) Your desired goals.

First, determine your current financial position – income, expenses, assets, and liabilities.

Draw up a personal income statement and balance sheet, just like how a company would do its financial statements.

Keep track of all your expenses by collecting all your receipts and group them into categories such as food, transportation, utilities, insurance, and so on. Then estimate your net worth by calculating the difference between the value of all your assets and the total debts owed (liabilities).

Next, identify your goals such as a new car, a new home purchase, retirement, vacations, etc. Then determine the amount of money needed for each goal and plan the amount to be saved each month and the time required to achieve that target.

Review periodically to see what expenses can be trimmed down or cut entirely, and also to monitor if you’re on track to achieving your goals.

5. What Causes Financial Failure?

As Robert Kiyosaki said, “It’s not how much you make, it’s how much you keep that will determine your wealth.

As mentioned earlier, human beings have a natural tendency for instant gratifications. They spend without thinking and planning. They care more about the immediate benefits which are ‘certain’ than the long-term privileges which are ‘uncertain’.

Therefore, the more money they make, the more money they spend. Eventually, they’re left with material possessions that depreciate over time instead of invested money that appreciate over time.

They’re living in a disillusioned world where everything is going to turn out just fine. It is often too late when they’re hit by reality that things are not just un-fine, but disastrous.

6. Your Assets Are What Matter Most

We all know that we can’t simply work hard to make money; we also need to make our money work hard for us.

Having a singular source of income is no longer enough to secure your financial aspirations. No matter how hard you work, your ability to generate an income is limited. Therefore, you need multiple streams of income.

To do that, you need to either start a side business or multiple side businesses, or invest your money into properties, stocks, Reits, bonds or any investment instrument that will produce dividends or passive income.

Once you’ve developed these different streams of income (assets), you can use them to raise your standard of living while you buy or develop more assets with your main source of income (your job).

They are all the more significant when you retire because you never have to worry about your well running dry. You can either cash out on them, or hold on to keep the streams flowing without much effort on your part, thus enjoying a retirement with no money worries.

Cheers~

P.S. Do you have any personal finance lessons that you’d like to share? Please share them in the comments section below. Thank you.

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