Lesson 36. Personal Finance 101

Most of us want financial freedom and ways through which we can get out of the rat race, however what I've come to realise is that most of us don't give a damn in pursuing a financial healthy lifestyle by knowing the end game, and taking the necessary steps to achieve this goal.

I have come to notice a couple of mistakes that many of us make regarding their finances and today I would like to clarify some of these mistakes and enable us to have a sound financial health status.

1. Not having a financial Plan

Most of us do not have a clear strategy on what they are aiming to achieve when it comes to personal finance, we don't have a clear goal and plan on what we need. I have found that having a financial plan is key in helping one to clearly understand how to minimize expenses and ensure that money is allocated appropriately depending on the financial strategy that has been set out.  Having a plan helps you to clarify on your choices, failing to set financial goals in can create tension later on as you realize that you have to work harder to make any sort of progress toward what you want in life.

2. Not tracking expenses

This is a key lesson for me, once I started tracking my expenses  I was able to identify key areas where I was spending inappropriately and knowing in which areas I needed to cut costs. There are several apps available that can help you with tracking your expenses and be able to see where your spend your money. Through this I was able to identify key areas where I could cut costs and optimize my financial health.


3. Not Paying yourself first

Many of us tend not to save or even if we save we usually save the remaining amount after taking care of our expense, this is a mistake, we should always try to save a certain portion of  our income preferably 10% of  our income before paying our bills, this encourages the habit of  saving first,  the best way to do this is through automating our accounts where one can set-up a standing order to ta saving account which is deducted through a certain set frequency.


4. Not having an emergency fund

This is very important since you don't know what the future holds, it is always important for one to have a good amount of money stashed in a saving account or investment account which can be liquidated easily when needed.

An emergency fund should be 6 months of your living expense, this will help you to survive in case you lose your job or due to any other circumstance that might necessitate the use of the emergency funds. To get to know your monthly expenses you need to track your spending that's why point No.2 is important as well.

5. Keeping up with the Joneses

Most of us tend to compare ourselves with others, this is dreadful pitfall we fall in every time, this is due to peer pressure or the pressure to fit in, this leads to some poor financial decisions, If you compare yourself with others,you may become vain or bitter, for always there will be greater and lesser persons than yourself. Everyone is on a different journey we don't know their financial plans and investments they have made to have all they own.

6. Not knowing the difference between good debt and bad debt

You see many people taking loans to buy cars, go for vacations, for weddings and so on, however these are expenses which do not add any value to your financial portfolio, they tend to be liabilities which increase the expenses, we should always aim to take "good debts", money that brings in return, for example taking a loan to start a business that has great potential for future returns, a good debt should be loan for something that will bring in returns and enable one to improve the financial positions, however we often tend to ignore this focal point when taking a loan, remember "bad debts" are liabilities and paying them off always leads to increased stress to your life and a bleak financial future.

Theses are few nuggets of  wisdom that I have come to learn, however taking care of your personal finance is very key if you want to retire early with a peace of mind  and live without debts.

“If you are born poor its not your mistake, But if you die poor its your mistake.”

Bill Gates