5 Keys in Managing Personal Finance
Personal finance is not just building wealth. It comprises wealth protection, wealth creation, wealth accumulation, tax planning and wealth distribution.
These 5 elements are crucial to build successful personal finance. Try to imagine one who only focuses on wealth protection. He is so scared about losing his wealth, how can he have more money? He would have spent more money buying insurance at low return which will not be able to cope the high inflation rate during the retirement years. Similarly to one who only focuses on wealth creation, if he does not accumulate and save, there will be no wealth despite his high earning capability.
Hence, to manage personal finance well, here are the 5 keys:-
- Have a series of financial goals: Examples of financial goals are education funding and retirement funding. Some may want to have luxurious home or cars. Having specific financial goals will help to motivate one to prioritize the spending and investment. One who desires for better lifestyle will have higher financial goal so he / she needs to be more discipline in spending and investment than the one who desires the normal lifestyle.
- Have extra cash flow every month: cash flow is the key in personal finance. One needs to be able to have extra saving every month. With extra cash flow, things can be planned. The extra cash flow can go into wealth protection or investment for accumulation purpose.
- Investment planning: the investment strategies will depend very much on financial goals. If the gap to achieve the financial goals is huge, one requires to invest more aggressively or longer period of investment. If the gap to achieve the financial goals is very small, one can just save in risk-free financial instrument like treasury note, fixed deposits, etc.
- Watch the debt level: debt is key in building wealth. Knowing which debt is good debt and bad debt is important. Bad debt will take the cash flow out from one’s pocket every month while good debt will give cash flow to the borrower. If one wants to build wealth fast appropriate level of debt shall be required.
- Getting help from experts: we cannot be the master of everything. Sometimes we do need experts to help us do tax planning, will planning, trust planning. If we are having unresolved loan issue, we shall also look for consultant to help us do loan consolidation.
Hope the above 5 keys can help you to excel in your personal finance.
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