Personal Finance – the basic elements
Personal finance is more than just having money for what you need and want. It's also about having money for what you might need, and being in control of your spending habits.
It's a core element of frugal living.
It's also about recognizing that your income is limited, and you need to stay well within it to enjoy a sense of stability and predictability - all of which contribute to peace of mind.
I would also point out that money matters in general are serious matters because people's lives can be ruined, businesses can fail, and poor decisions can haunt you for the rest of your life. So, you can see that there's a lot of individual responsibility wrapped up in the arena of personal finance.
From my perspective, there are eight main areas of concern when it comes to personal finance, and they are: attitude; goals; planning; tenacity; savings; investment; delaying gratification; budgeting; and being realistic about things.
Attitude - an important element for everything we do. Get yourself a "can do attitude" and you'll go far. Adopt a "helpless victim" attitude, and you're doomed from the start.
Goals - you have to know what you're trying to do. You might think about it as a carrot on the end of a string, or perhaps it's the light at the end of the tunnel. Either way, you need a focus to encourage you to press forward.
Planning - one of the most important aspects of our financial interests or any other endeavor. It establishes how you're going to reach your goals. Planning how to reach your goals is far more important than having goals. With a plan, you can assess how realistic your ambitions are.
Tenacity - that's sometimes seen as stubbornness and being hard-headed. Well, what's wrong with that? Who has ever achieved something worthwhile by giving up? Sticking with it is essential. Whether you're trying to get out of debt, stay out of debt, or amass a great fortune, you have to stick with it.
Savings - the most basic of all personal finance elements. If we squander our money, we can't build wealth in sufficient quantity to do much of anything worthwhile. And, we'll be unable to make significant investments either. Even if you have no goals and no plan, you should have regular program of savings.
Investment - this is the tricky part because there are so many types of investments out there to choose from. Whether you lean towards something aggressive and risky, or something with modest return and low risk, you first priority should be an investment in you and an investment in your future. Education, training or your own enterprise all appear high on my list of self investment activities.
Delaying gratification - an essential characteristic of the upwardly mobile is the ability to delay gratification. If we can't resist satisfying ourselves with discretionary purchases and living "high on the hog," then there isn't much of a change that we'll be a master of our personal finance.
Budgeting - this isn't something I've ever done formally, but it's the core concept behind successful personal finance. We need to know about our income and expenses so we can strike a nice balance between making money, savings and investment, and our personal cost of living. Often, just getting what you make and what you spend down on paper can be a real eye-opener. You might find that your monthly household budget is thousands of dollars more than you anticipated.
Being realistic - another essential part of our finances and everyday living. We need to be realistic about income, how much we can afford to spend on things, and how long it will take us to achieve some of the goals we have. Being realistic allows us to temper our expectations, and that will help keep us on target with respect to our financial planning.
You don't have to be an expert at personal finance to be successful at frugal living, but quite often being frugal is important for success in the financial arena. Know the basics and practice them as part of your daily activities. Be conservative and reasonable, and you'll do just fine in the area of personal finance.
Done with Personal Finance, take me back to Mindset of Frugality