Personal Finance is one of the most important aspects of your life, but it isn’t taught in most schools and the majority of people in the world are financially illiterate. Although not exciting to most, personal finance directly relates to your life everyday.
Personal finance by definition is how you manage your money. But what is money really? Below is my interpretation of what money truly is.
Money = Choice = Freedom = Ability to Fulfill Your Dreams and Purpose.
The important thing to realize is that money affects how you lead your life. If you don’t have money you can’t do many of the things you want in life. Money is simply a tool that gives you choice along the way. This, however, doesn’t mean they will be the correct choices.
Without money, you can’t buy food, you can’t pay rent, and you can’t spend on entertainment. What about that summer trip to Paris? Not gonna happen if you don’t have money.
Without learning personal finance, you’re going to lead a completely different life than someone with personal finance knowledge. Basically, you’ll be less free than them. You’ll be imprisoned by the stuff you own, your job, and the reoccurring feeling of not having enough money. Living paycheck to paycheck is a common trait of those who do not have personal finance knowledge. Learning about personal finance gives you the knowledge and understanding to make smart money choices. Thus, you become more in control of your own life and are empowered to do the things that matter most to you.
Learning how to manage your money means learning how to become free. It also means learning how to become smarter and more aware of opportunities in your life. Money is power and learning personal finance will teach you how to become more powerful.
One of the cornerstone concepts of personal finance is the concept of the time value of money. Below is a classic example, but it’s so incredibly important that I’d like to highlight it here.
Pretend for a moment that you have a 25 year old and a 35 year old.
The 25 year old invests $2,000 a year until the age of 65
The 35 year old invests $2,000 a year until the age of 65
We’ll assume they both get the same rate of return on their dollar, in this example we’ll use 8%. Where will each of them be when they reach the age of 65?
The 25 year old has: $518,113
The 35 year old has: $226,566
The difference is $291,547.
The only difference is the 25 year old started investing 10 years earlier and invested $10,000 more. However, that difference made him more than twice that of the 35 year old.
In this instance the knowledge of investing young was worth $291,547. This is only one example of the many lessons personal finance will teach you.
Personal finance teaches you about money and money is the ability to make choice and gain power. Learning about personal finance will give you freedom in your life and the ability to accomplish your dreams. And that my friends, is why learning personal finance is so important.