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The Important Elements of Personal Finance

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Personal finance describes all the aspects that have something to do with the individual’s finances. This can include the resources and how the individual allocate and budget these resources. The four main components of personal finance are savings, debt, investment, and retirement.

Savings

Saving goes with budgeting, and is one of the most important things you should learn if you want to attain financial freedom. However, not all people are equipped with saving skills, and this is one thing that can take a long time to learn. Still, by being conscious of your income and expenses, and by being mindful of your spending habits, saving money can be learned and mastered over time.

There are many varying opinions about how much of your income should you save monthly. While it’s good to have a certain guide to follow, there’s no one rule that would fit an individual’s unique circumstance. Disregarding the rules, you should begin saving, no matter how big or small. In the end, you will learn to adjust on other things to put more into your savings. You should also not forget that part of saving is building your emergency fund.

Debt

Each one of us will have to borrow money at one point, and there’s nothing wrong with that. Everyone needs to study, needs a place to live and a car to drive, and most of us can’t afford to pay for them in cash. Some financial assistance can be very helpful, and we should welcome a healthy amount of debt in our lives. This is why it is important to obtain credit and start building credit, so that when the time comes that you need it most, you’ll know you can borrow without much difficulty.

However, the problem comes when one mishandles debt. With debt, there are a lot of things to learn and a lot of sacrifices to make.

Investments

Focusing on earning money from your job is not enough. It is everyone’s dream to become financially free and to retire early, but in order to do this you need to have a nice stash of savings and some good investments to count on. In addition, you need to have a good diversity of your investments. For example, part of your investment money should be allocated on low-risk investments with absolute returns, while some of it should be put in high-risk investments with high returns. Be very careful on these high-risk investments though, and be sure to only invest the money that you can afford to lose.

Retirement

For many, retirement is something that should not be given much thought as early as now, but on the contrary, retirement should be planned ahead while in your 20’s. The earlier you start saving up for retirement, the more likely that you’ll reach your retirement goals. You should also be very realistic on your plan of activities when you retire so that you will be able to prepare for it not just financially, but physically and emotionally as well.

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