5 Reasons Why Personal Finance Is Important To Make You Rich

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importance of personal finance

Hey you, my beautiful reader, give yourself a pat on the back for wanting to know more on the importance of personal finance and what exactly you need to be focusing on when it comes to managing your money.

Before we start, let me ask you a question – do you agree that personal finance should be taught in schools?

Cause I sure do.

As Robert T Kiyosaki mentioned in his book “Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!”, things that are being taught right now in school will definitely help you to become a good employee – but not necessarily good with money. And I couldn’t agree more.

If I were to look back my relationship with money, it’s always been spending money just because I’m getting money. What comes in will go out.

It’s just not healthy.

And have you ever wondered who makes it compulsory to do tax filing every single year, but this topic has never even been touched in schools? It’s pure crazy.

So, because of all these things that are lacking in our current education system, we need, we must go and explore what needs to be known and done when it comes to personal finance.

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Why Is Personal Finance Important?

Being empowered in your finances is not just by having money but more importantly, how much you understand how money works. I got this from the book Broke Millennial: Stop Scraping By and Get Your Financial Life Together – one of the personal finance books worth investing & reading.

Anyway, here are the things you need to understand so you will know why a lot of people (me included) has been telling you to get your finances together.

But before we start, do you remember the triangle of life that has been making everyone stuck?

IMPORTANCE OF PERSONAL FINANCE

The time, money, and energy triangle. When you have the time and money, you don’t necessarily have the energy. When you have the money and energy, you don’t have the time, and well, when you have the time and energy you’re more likely not to have money.

Becoming empowered with personal finance helps you to break out of that cycle. And to me, it’s called financial freedom. But you won’t get there if you’re not taking your finances seriously.

So, let’s jump onto why it’s important to learn about money and become financial literate.

1.Preparing For The Future

If #YOLO has been your motto in life, this is the time for you to change and start thinking about your future. #YOLO can be nice to make sure you’re never missing out on any experience just for the sake of saving money. I’m a millennial, so I resonate with this very much.

But you DO realize the action of getting employed, getting money, having insurance, creating savings, investing are all for the future, right?

  • For us to get the best retirement plan ever.
  • For us to have a cushion when time gets rough.
  • For us to have the most memorable wedding of the century.

Our money and effort that we put into our lives NOW are mainly to support our future. Even if you’re going for your own business now, it’s to have a better-looking future.

So, knowing that, you got to ask yourself, just how much have you prepared NOW to live comfortably in the next 20 to 30 years?

And when you do the calculation, almost everything comes down to money. If you don’t know how to manage money well and understand how money works, it’s going to be hard for you to get to that future you’ve been dreaming of.

Learning personal finance AND implementing financial advice can go a long way in your life.

2.Having Security

It’s not just about having an emergency fund. Yes, I know almost every personal finance book out there already tells you to get your emergency fund sorted, as you should.

I’ve also done an in-depth article on emergency fund that you can read here: How To Save For An Emergency Fund – All Things You Need To Know!

But when it comes to personal finance, security is not only about your emergency fund. It’s about your risk management.

When your car suddenly got stolen, when you got into an accident and your emergency fund can barely pay the medical bills. Or becoming a parent and wanting to have the best security for your children’s future.

This is all a part of personal finance that you need to know. We’ll go deeper on risk management below but for now, know that personal finance is not only about budgeting, spending and making money. It’s a lot bigger and more holistic than that.

3.Get Hold of Your Life Triangle

Remember the life triangle I mentioned just now – time, money, and energy? If you ever want to get hold of all the 3 at the same time, it’s important for you to know how money works, so that you know how to make money works for you.

Once you get your money to work for you, you’ll be able to focus more on time and energy – and what you can do with them.

One thing I might want to add here is that it’s totally up to you if you want to play everything safe, meaning that you’ll do a checklist to get your finances in order, like how Dave Ramsey teaches in his book “The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness”. It’s fine and you’ll be able to be off just fine.

However, if you look at how the rich and wealthy live their lives, they are not doing those things that are being told in the book. They have debts and they didn’t pay them off early. They invest in risky investment vehicles – in essence, they take risk.

But before they do that, they make sure they are equipped with the knowledge of money.

This is really up to you on how you want to be with money. But know that there are options, not only those things being mentioned in personal finance books.

4.Having Better Sleep

I’m including this because I’ve been in a place where money gives me sleepless nights. And it’s not a wonderful experience that I’d wish on anybody.

If you’ve been having a love-hate relationship with money, I’m sure you can resonate with this. When there are times you’re either in debt or just not sure how to pay for that car repair which happens to be the only way for you to get to work the next day.

When we let money control us, it’ll give us anxiety. It’ll give us sleepless nights.

Knowing that your money is in a safe place, being consistently invested for things you want is something you’d want to strive for. And something that’ll give you a peace of mind.

Having good personal finance can help that.

5.Protecting Yourself From Shady Business

I’m including this here because I know that not everyone knows how to read a credit card statement, what more a loan agreement.

I know I’ve been in that place before and it’s scary. Because you really are not sure whether you’re doing and signing the right thing. What if you got sucked into a very high-interest rate for that personal loan?

Banks are clever and they are run to be profitable. Even on the interest rates, sometimes they can use different terms such as the nominal rate or the real rate of returns – when they can obviously use a standard term for easy comparison. I do think at times they are just trying to confuse us. (Those two terms do not have the same meaning by the way).

One of my friends whom I’ve known since college just told me recently that she now knew how to read credit card statements. She’s been in credit card debt for the past 3 years and she thought she’d only need to pay the minimum balance and she’ll be off any fees or interest – wrong. Hence, for the past 3 years, she’s been paying interest charges every, single, month.

If you don’t want to be in the same shoes, learn personal finance. It will help to protect yourself from unnecessary fees and any shady business given by agents.

Basics of Personal Finance

So now you know some of the main importance of personal finance, it’s time for you to understand the basics of personal finance that can help your life all around.

1.Money management

The first basic thing you can do with your money is to get your money management in order. This includes budgeting your money right that will contribute to your savings and investments.

I always recommend to first track your expenses before committing to any kind of budgeting because it’s very easy for you to yo-yo your financial diet once you underbudget for certain categories that you tend to spend the most.

If you deprive too much of your finances at one go, it’s very easy to feel demotivated to stick to your budget. And I think in the long term, you’d want to find a budget that can still give you fun while growing your savings and investment at the same time.

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Grab My Free Yearly Budgeting Template Here

I personally track and budget my expenses using a spreadsheet here. And if you’re interested, you can definitely grab a copy for free. By the way, if you’re a fan of spreadsheets like me, there’s a software out there that can help manage your money even better. I thought I didn’t need it because I’m already cool with my spreadsheet – but I was totally wrong.

I’d really recommend checking out Tiller Money and get their free trial. If you don’t think it’s life-changing like I did, you can cancel anytime during the free trial.

Once you know how much you usually spend in the main categories:

  1. Fixed Expenses
  2. Savings
  3. Investments
  4. Guilt-free spending

You will now need to allocate a budget to all those categories. If you’re trying to save more, find out a few ways to reduce your expenses. I have a sheet of 50 money-saving tips and you can grab it for free here.

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The amount of savings and investments you’d need to do will depend on your situation like your status, age, and how much debt you have. I’d recommend trying to do a simple financial ratio analysis of your net worth & cashflows to know exactly how you’re doing financially so you can manage your money with purpose.

You can also read my post on benchmarking your wealth here.

Budgeting Methods:
50/30/20 budget
  • 50% to fixed expenses
  • 30% to guilt free spending
  • 20% to savings and investment

This is a pretty popular budgeting rule, that I’ve never really used because I don’t believe in one rule to fit all. Everyone is supposed to have personalized budgeting based on their financial situation. So, take my advice above, refer to this guideline and do your own budgeting rule 😊

Envelope budgeting

I’ve personally tried this method before and it worked only when I was in school. Because I didn’t really use any credit cards or have a lot of money in the bank or have a fixed income every month.

If you’re a fan of cash, this could be for you, but I’d prefer to go cashless most of the time now. My advice is though not to withdraw the money at one go. Settle your fixed expenses then whatever is left to be budgeted throughout the month, just withdraw enough to sustain for the week.

So that you won’t be tempted to use all the cash at one go AND make sure you have some risk management if there’s anything to happen to your cash.

Pay yourself first budgeting

This is probably the most laid-back type of budgeting, and this is usually what I’d recommend to people who are comfortable.

What I meant by comfortable?

People who are not really looking to save more money because they know they have contributed enough for their insurances, savings, and retirement. They are also not one that’s currently strapped with money.

The method is very easy where most of the things should be automated. Once you get your salary, you’ll be paying all your bills (preferably on auto-deduct) including your savings, insurance, and investments. You’d know how much you’ll be able to spend every month on the balance after you’ve paid all your bills.

One thing to note though, some expenses like car maintenance or quarterly subscriptions can be sudden if you’re not prepared. List down all your periodic payments and create a sinking fund for it so that you’ll always be able to pay them on time and NOT with your emergency fund.

Recommendation for this laid-back method:

If you like this type of budgeting, I’d really recommend reading Ramit Sethi’s book “I Will Teach You to Be Rich, Second Edition: No Guilt. No Excuses. No BS. Just a 6-Week Program That Works“. He explains more on automated payment and living your rich life – to which I thought would be fitting for millennials out there.

When you’re doing budgeting, you also need to make sure you have your savings account sorted. This could be where you keep your emergency fund or other savings that you may have like a down payment for a car or a vacation at the end of the year.

It’s important to keep this money in a good savings account with a high-interest rate. I know this is 2020 and the interest rate is really low but I’m guessing the inflation rate won’t be too high that it will quickly erode the value of your money.

A quick rule of thumb is to find out what’s the average inflation rate in your country and compare it with the savings account.

Find out whether the interest rate is compounded daily, monthly, or yearly. The best is daily so that it won’t take a year for your money to be compounded.

My recommendation for a savings account would be CIT bank as it provides daily compounded interest and one of the highest APY offers out there. Check out the link here to view all products that CIT bank offers and I can assure you that it’s one of the best rates to be compared with other banks.

2. Investing

Investing and saving to my definition are two different things.

Savings is to make sure that your money is beating inflation so that it won’t erode your purchasing power while investing is to make sure your money is working for you, giving you even better returns.

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There are a few main reasons why you should start investing if you haven’t started already

  • Getting more income, especially when you’re no longer able to work
  • Growth of capital from your money
  • Tax minimisation wherever possible

The first thing you should know here is that there are a lot of different ways for you to start investing and I couldn’t possibly list out everything here. But I hope this will guide you to start.

Whatever investment vehicle that you’re planning to do, know that there are always going to be some sort of risk that can affect your investment returns such as credit or default risk of the companies you bought shares in, political and market risk as well as foreign exchange risk. One thing you must remember though is that the higher the risk of an investment, the higher the return 😊

But there is one way on how you can avoid those risks – diversifying your investment portfolio. Basically, don’t put your eggs in one basket. Learn to take up different kinds of investment so that you still have a cushion if one decides to not work out that great.

Below are examples of different investments you can start:

Shares or Equities

This is basically when you want to also become a part of the company. You can buy 1 or 0.00005 shares of the company that you believe will grow and become profitable in the future. A lot of people will still buy blue-chip companies because they’ve been known to usually being profitable year after year.

Though it is enticing to buy shares in blue-chip companies, the price isn’t exactly the most affordable. That being said, there are fractional share investing brokerages that can help you buy only a fraction of a share of a company like Betterment.

Equity is usually considered a high-risk investment, but depending on the companies that you’re investing in, they also bring in their own sort of risks.

If you’d like to know more about how to pick the right company to invest in, you can read my guide here on fundamental analysis. And pick up this book by Benjamin Graham called “The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)” – he’s the mentor of Warren Buffet, and you’re sure to pick a few new things in that book.

Also related: Top 10 Best Investing Books For Beginners To Read This 2020

Debt Securities (Bonds)

Bond is considered one of the low-risk investment that you can do. There are different types of bonds out there derived from different loan borrowers – could be the government or also private institutions.

You will usually look at bonds when you’re nearing the retirement age since it’ll give you a fixed income from its coupon payment. You will also have more money in hand to purchase a bond that has a higher face value.

Honestly, there is a lot to know about bonds but I couldn’t possibly fit them all in in one guide. But if you’re looking to invest in one, know that the savings rate will impact the face value of the bond. They will usually compete with each other.

So before you start investing, do your due diligence and run the numbers to know whether it’ll be more favorable to invest in a bond or to save your money in a savings account. Remember that bond is probably the least risky investment out there. Therefore, the return will also be less.

Foreign Exchange (Forex)

Yes, forex is not only for when you’re traveling but you can buy and keep different currencies for investment purposes. Though not many people I know actually go for this route, you can definitely do so. And for your information, forex is the largest liquid market in the world and it’s the easiest investment for you to well, liquidate.

There are people who trade forex and find it easier to do so compared to stocks. I can’t give you much guidance in this because stock or forex trading knowledge will be the very last chapter I’d like to master when it comes to making money.

Not that it’s bad, but I want to trade more when I have the money to lose. Since I’m now still in my 20s, I’d like to keep my money on investment vehicles that I know and understand very well. And I really suggest you to do the same too.

Property or Real Estate

Well, investing in real estate has been a pretty hot topic since well 2008.. (see if you get me). But in all seriousness, property has been one of the top choices for many all around the world to invest, and it’s been like that because of the return.

Or the psychology of it being THE one way to getting rich – it’s not.

Now I would like to see property investing to be different than buying property for your own stay. Because you won’t really get much out of that expense, other than having your own space. I personally invest in a property and I made myself clear from the very beginning that it’ll be solely for investment. Therefore, any decision that I made with the property, I’ve been emotionally detached.

If you buy properties, rent them out, and get positive cash flow from them, then great because you’ll be able to get 2 sources of income from each property; rental income as well as capital gains.

But if you’re thinking of investing in a property for your own stay, read my guide here on renting vs buying a house. If you’re like to read more on my property investing journey, click here.

Unit Trust (managed)

Unit trust is probably one of the most popular investments out there (at least for me). It was the first investment I did outside of my retirement contribution. One thing that I’d wish someone would tell me back then was just how much I’ll be paying in management fees.

This is the reason why I’m saying financial knowledge is a necessity for everyone so you won’t make my mistake. Had I known the amount of management fees I had been paying all these while, I’d go for robo-advisors and pick my own funds that I’d like to invest in.

But because I didn’t have much financial knowledge at that time, I let an agent pick the funds for me which happens to have high entrance and exit fees – because I didn’t know anything and need guidance, therefore the hefty fees.

Before I digress any further, let’s take a look at what exactly unit trust is and why you need to understand the word “fund’ beforehand.

What Is A Fund?
importance of personal finance

When it comes to investment vehicles, in layman’s terms, a fund is a bundle of different shares. Say you want to invest in a share market but you want to diversify and buy 20 different stocks. Now buying 20 individual stocks can be expensive. So what you can do instead, invest in a fund that already has 20 different companies’ shares inside.

This is what fund managers do – they compile a list of companies’ shares and call it a fund. But of course, it’s a bit more than that, in terms of analyzing which companies and how much percentage of each company’s share will be in the fund.

These funds will then be something you and any investor alike can invest in.

Types of funds
Equity & Securities

Fund is not only for shares of companies, it can also be for bonds. Again, depending on what kind of “bundle” a fund is, will dictate how risky it is.

If your fund consists of equities, it means that you’re a high-risk taker whereas if your fund is on bonds or securities, then you’re considered as low risk taker.

Index Fund

There’s also Index Fund and this is considered the low-cost fund – and I highly recommend you guys to get this first, for its very low fees.

Why the low fees? Because there are no fund managers behind this fund. An index fund is basically following the market trend of the top companies on the exchange. For example, the S&P 500 follows the top 500 US publicly traded companies.

Index fund has also been known to stand the test of time. There are always gonna be a few drops but if you take on average for the past 10 years, the investment has usually seen good growth. Look at S&P 500 performance from 2010 to 2020 – it’s seen 13.6% positive returns. Now compare that to your savings account with less than 0.5% APY 😊

Historical returns for S&P 500
ETF

Now that you know what fund means, there’s another thing you need to know which is exchanged-traded fund also known as ETF.

ETF is basically funds that you can trade, like stocks and forex.

There are a few things you need to know about ETF. ETF doesn’t have high fees because you can easily buy and sell on exchange online but also due to that, you might have the tendency to trade your funds a lot more and will incur more transaction fees.

Our main point here is to avoid any unnecessary fees, guys.

REIT

One more thing before we move on to the next chapter is REIT. One of the least talked-about funds but very important for you to know.

REIT stands for Real Estate Investment Trust and if you’ve been wanting to invest in properties, well, here’s your chance.

Similar to what I have mentioned with funds, REIT is made up of real estate companies that produce income from their properties and that income will be distributed back to you (if you decide to invest with them) from their high-yield dividends. There is a lot to discuss when it comes to REIT which I’ll definitely cover in a more in-depth post soon. But for now, do know that you can also opt for this and you can easily find them on any exchange.

When it comes to investment, my advice is to stick to what you know and understand first right now. As you get to invest in other knowledge such as trading, then you can go ahead and focus on that.

If you’d like to get started, even as low as $5/month, even when you’re still a college student, I highly recommend checking out Acorns. You can open up a micro-investing account and just invest your spare change. It doesn’t cost a lot and you can get it up and running in 5 minutes.

3. Risk Management

importance of personal finance

Before I start, I want to give a disclaimer that I am NOT an insurance agent nor I’m trying to sneakily get you to buy an insurance like any other insurance agents out there.

Although it is a bit annoying that your high school friends only contact you after all these years so that they can sell you an insurance policy, it is still very important for you to know AND get an insurance policy for yourself.

I personally think that insurance is supposed to come first before saving up for an emergency fund. If you were to look at the hierarchy of needs of a human being, we’d need security right after the very basic like food and water. Yes, emergency fund is also for our own security.

But there’s a limit to how far an emergency fund can help us. Yes, it can help pay for the sudden pipe burst in the house but it certainly won’t be able to cover should there be something bigger and more severe that happens to you.

This is why you need to understand risk management when it comes to your life and your assets.

There are 2 different types of insurance you’ll need to know:

1. Life Insurance

Life insurance is basically a value-based contract on how much you “deem” yourself to be worth. Please always remember there’s no price tag to your life. But in this logical and rational calculation, you’d need to take into account how much you’ll be leaving behind should something happens to you.

If you have debt, how will those debts be covered? If you have a family, how can you make sure they will still have the same lifestyle if you were not here? You gotta ask these questions to yourself in order to be prepared for the worst.

There are 4 main types of life insurance:

Term Life

Term life is considered the most basic life insurance out there. Say you’re thinking that something is gonna happen to you in the next 5 years. And if something does happen to you (disability, critical illness, or death), you will get a certain cash value.

But if nothing happens, then you won’t get back your contribution. You can extend the policy but your premium will also be higher. Since it is the most basic, it will also be the cheapest among all 4.

Whole Life

Whole life is basically an upgrade from term whereby if nothing happens to you after 5 years, you will still get a cash value from your contribution, plus at times more bonuses.

You can also participate in the insurance company’s profitability. If you opt to participate, then prepare to pay a higher premium. Even if you don’t participate, your premium will be more expensive than a term life plan.

Another thing you need to know is that whole life will usually have a longer coverage term, as being stated in the name “whole-life”, as compared to “term-life”.

Endowment or Universal Life

An endowment is the most expensive of all 4 because it basically favors you, the policyholder the most. Other than paying premiums for your cash value at the end, you will also have a separate savings account that some of your premium will be contributed to. You can then use this savings account for your child’s college education or many more.

Investment-linked

Investment-linked is pretty straight forward based on its name. Your cash value will depend on the returns that you’ll get from the investment you’ve chosen.

These are very basic explanations. When you meet up with an insurance agent, they will listen to your needs and suggest the ones that suit you and your concerns the most. You can also have multiple riders (smaller policy) within an insurance policy like reimbursement when you get to an accident etc.

2. General Insurance

Now that you have a basic idea of life insurance, it’s time for you to understand general insurance next. Again, I won’t go very in-depth but basically, general insurance will cover your car insurance, homeownership insurance, mortgage insurance, and many more.

As I’ve mentioned before, life insurance is a value-based contract. General insurance on the other hand is based on indemnity. It’s not for you to get gains but basically to help you get back to your original financial status before you incur any losses.

Say your car got stolen and you report this incident to your insurance company. They can help you by reimbursing the amount of your car’s market value at that time. If you bought your car at $40,000 but you’ve been driving it for 5 years and the value has since gone down to $20,000, your insurance company will only give you a cheque of $20,000.

This is the simple rule of indemnity. It is to help you from your financial losses but not to give you any kind of gains.

4. Tax Planning

Okay guys, I’m going to be honest. I used to dread the process of filing taxes but now, it gives me some sort of trance. The feeling is almost similar to when you’re decluttering your home.

But this is better because you’ll be trying to find ways on how to protect your money. It is going to take some kind of learning and understanding when it comes to taxes but it’s so SO worth it.

The first thing I would recommend is to get to know all the tax relief that you country offers.

Literally everything. Go on the internet and list down everything. If there’s a relief for self-employed then list down what they are and how much relief will be given.

It’ll take you some time, and at times you feel like you want to throw in the towel. I get you, I’ve been there. But this will really help you in the long run, trust me.

If you’re self employed like me,

I’d recommend to get a business license as a sole proprietorship and make sure you learn how to create a simple business account statement. This is so you will be able to deduct a lot of expenses that you incur during your business operations. And if the Internal revenue people come knocking at your door, you’ll have the statement ready.

Also guys, never ever try to cheat your tax filing. If you try to do it and somehow got caught by the IR people, you’ll have to have to pay a very hefty penalty.

By the way, I know that there are many tax software out there that can help you to do your taxes. However, in order for you to access different sections, you usually need to pay for their services. I don’t condone you to do that. Because I don’t see why I’d need to pay for a simple service to protect more of my money.

If you’re a high net-worth person and have businesses to run, you can get a CPA to help you with it. But if you’re a normal middle-class person like me, I’d prefer to up my knowledge in tax filing and get things done myself. In this sense, I’ll also know what to do in the future in order to get more tax relief.

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5. Retirement & Estate Planning

Have you ever really thought about your retirement? How exactly your life will be like?

I, to be honest never had. Because I don’t think I’d want to be in retirement. I want to break the life triangle chain as soon as possible and be able to work on things that I enjoy.

That being said, I’d always want to prepare just to be safe, knowing how fickle I can be at times. So I’m also preparing for a situation where I’ll be like everybody else, reaching retirement at the age of 60.

Have you ever planned on how much you’re planning to make at 60? And how much you’re planning to get from your investment at 61?

If you haven’t, well this is the time for you to think about it, my friend 😉

importance of personal finance
First –

thing you need to figure out is the last income you’re expecting to get before you retire. Maybe you’re thinking of earning $500,000 annually just before you retire. Have that number in mind.

If you’re not really sure, you can do a simple calculation. Perhaps you can expect to have at least a 3% salary increment every year. Now if you’re currently 25 years old making $60,000 annually and want to retire at 60, you should be expecting to make $168,831 annually by the age of 60.

The formula is the same as savings formula, by the way.

Second

figure out how much you’d want to have the next year when you’re 61. Maybe you’re thinking you can live off with 2/3 of your previous salary or income. Or you’ve calculated your expenses and know exactly how much to prepare and buffer. No matter how much you want, have that number in mind too.

Third

have your life expectancy number handy. This might be based on your family’s personal medical history or simply from your country’s statistics. Females tend to outlive males, by the way 🙂

Forth

taking into account the inflation every year, calculate how much you will need to have when you start your retirement phase, in order to live off your life expectancy’s age?

In other words, if you’re expecting to live till the age of 100, how much money you need to have at the age of 61, in order to live off for the next 40 years.

Fifth –

list down and calculate whether your income sources (savings & investments) will be able to help you achieve the amount you need once you start the retirement phase at the age of 61? If your answer is no, then you need to go to the next step.

Sixth –

figure out an investment vehicle that you can put down now, in order to meet the amount you need when you retire. And with that, you’ll know exactly how much you need to contribute to your investment account every month 😊

This can be a bit difficult to calculate if you don’t have any finance background. You might need some help to calculate all of this.

Here’s an online calculator that can help you: click here.

Or if you’re willing, you can also have a 1-on-1 financial coach to guide you through this. There are financial advisors out there that can help you through retirement planning, however; this route can be expensive. I know some financial coaches charge about $500 for an hour of consultation call.

There’s a service that can help you with retirement investing PLUS having a certified financial advisor that can guide you. If you’re keen, I highly recommend checking out Blooom – I love it because the pricing is straight forward (no hidden fees) and affordable for the benefits that you get.

You can start at $45/year or with financial advisors support at $250/year.

That’s for your retirement. Now, it’s time for you to think about your estate planning.

Estate is basically your assets once you’ve passed away (touchwood!) – yes, I’m a bit superstitious. You need to figure out who will take care of your assets or debts once you’ve passed in order to protect the wealth that you’ve accumulated during your lifetime.

This comes to the need for you to write a will or perhaps create a trust. I will cover this more in-depth in a separate post but know that if you don’t take care of this, whatever wealth you’ve accumulated will be frozen and can take up to years for it to get settle and transferred to your family.

4 Areas to Think About When It Comes to Personal Finance

When it comes to personal finance, some might think that there are a lot of things they need to know and they aren’t really sure on what they need to do and focus first because it can all be overwhelming.

I get you. Remember, I’ve been there too.

My financial advisor taught me this – well she didn’t actually teach me, but it’s a plan that she showed to me to analyze where I am right now with my finances. I thought it was interesting and I’ll share it with you guys here.

importance of personal finance
You only really need to focus on these 4 areas
  • Health

How healthy & protected are you right now? This can come back to your life insurance as well as your medical insurance. If you’re having health problems, how are you taking care of your health? Does your company provide any medical benefit? If yes, is it enough?

  • Wealth

List down all your sources of income. Are these tax-friendly? Have you put a nominee or a beneficiary to all of your investments yet? If you have a savings account, does it have a competitive interest rate? Have you diversified your portfolio yet?

  • Debt

How many debts do you have now? Do you have a plan on how to settle the debts? Are your debts insured? If they do, are they fully insured or only up to a specific amount?

  • Death

Have you started writing wills? Will you need to set up a trust? Do I need to link my life insurance to a trust? What about your properties – do they automatically being transferred to your family or do you need to create a will? How do you avoid estate tax?

Take Action Today

I couldn’t possibly put and write everything here but I will create more posts in the future that will explain more in each topic for you.

What I want you to do today is to grab a few personal finance books and read them. This is how I started and they did really help me in at least a section of how I manage my money today. Here are my 10 Best Personal Finance Books.

Unlike learning a language, personal finance knowledge is always evolving due to changes in monetary and fiscal policy in each country. They are not changed very often but it’s still beneficial for you to always stay on top of the game to protect yourself and your money. So I do encourage you to always seek more knowledge and information on personal finance.

As always, if you have questions or comments, you can write them down below and I’ll answer them to the best of my ability 🙂

If you do enjoy this quick guide, please share it with more people.

So that they can also have a bit more understanding in the personal finance sphere. It will also help me with my blog, knowing that people are getting some sort of value from my time writing all of this content.

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Cheers!

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