5 Key Areas To Focus In Personal Finance

Money is a necessity. It is needed for survival; to buy food, clothing, shelter, and even pay for education and much more. Knowing money and how it works is a skill that not so many have. And this is usually not taught in schools.

Financial literacy is the ability to know, understand and use basic financial skills to manage your financial activities. It is an important skill needed by all irrespective of gender, class or age.

Not knowing how to handle money is one of the major reasons so many people keep struggling financially even when trying to cater for basic needs.

Living a financially stress-free lifestyle is not about how much you earn but rather how well you plan and manage that which you have, causing it to multiply and preventing ‘unnecessary’ borrowing and expenditure. You can be a high-income earner and still be left in debt at the end of every month.

Personal finance entails planning and managing your money matters; like income generation, savings, expenditure, investment and protection of funds. It is a skill needed by all and not by a certain set of individuals who work in the financial sectors or have a certain amount of money.

When planning and managing your money, it is important to know that there are certain key areas of focus. And they include:

• Income
• Savings
• Spending
• Investment
• Protection

Income:

When planning your finance, you need to first consider how much you earn. Your income is the source of the money you use to sort out your needs and wants; it could be from salaries, pensions, dividends, wages, or even gifts. The amount you earn will determine what you spend on and how you spend.

Savings:
It is that certain amount set aside to cater for unplanned and future expenses and investment purposes. it should be a habit. And need to be done deliberately and consistently. If possible,  first set aside your savings before your start spending from your income.

Spending
Make plans on how to spend and what you need to spend. You can do this by listing out the necessary needs and wants that can be afforded within your means. Remember not to spend above your income. Never buy items that require you to borrow to acquire. This is very unwise and reckless.

Although borrowing can be very helpful only when it is used to secure an asset with the expectation of returns. The 50/30/20 rule can help you achieve this. Use 50 per cent of your income for essentials like food, clothing, shelter and transportation; the 30 per cent to gratify your desires and wants; whereas 20 per cent should be for savings for emergencies and investments (10 per cent for emergencies and the other 10 per cent for investment.

Setting aside funds for emergencies and unexpected events is an important and noble thing to do. This is because life happens. And when life eventually happens, these funds are put to good use.

Investment:
An investment involves putting your money in a profitable venture to yield returns. You can invest by buying assets like mutual funds, real estate, stocks, bonds, properties etc. Some come with risks and can be lost in the event of unforeseen circumstances.

Protection:
This entails safeguarding your assets and financial resources against unforeseen occurrences and for the future. You can protect your finance through insurance, retirement plan and so on.