Managing your personal finances
Today we are living in the very unique and dynamic time in our history. Thanks to the blockchain technology, the entire world is changing to a distributed and decentralized digital economy. With the introduction of Bitcoin and cryptocurrencies, we are moving towards a cashless society. In telecommunications, we are only one step away from deploying the 5G generation of network technology.
On the contrary, the unexpected coronavirus outbreak has caused unprecedented economic fallout and financial collapse. The global economy and financial markets such as stocks and commodities have never been hit so hard since the Great Depression in 1929. This has resulted in disruption to the economic growth with many businesses being extremely affected across all industries. Furthermore, the unemployment rates are skyrocketing; devaluation of fiat currencies and an increase in national debts are inevitable. Without a doubt, the uncertainty is growing and it’s hard to predict how severe the consequences of the economic recession will be.
Time to adapt to changes and find new opportunities
As we can witness, there are many good and bad events happening around us at the same time. Currently, companies are mastering how to survive during the coronavirus pandemic. They implement digital processes into their business activities and create new opportunities for the digital e-commerce world.
But how about us people? I think that during the financial crisis we are the most vulnerable. Hence, we are at a greater risk of having challenging times in situations such as this one. Therefore, it is very important like never to determine our current financial status and analyze how we can prepare ourselves for these difficult times. We should see the approaching financial crisis as a step towards harnessing a financial contingency plan against unknown future events. In simple words, we have to write down a strategy on how to maintain our financial stability and security. Since its important to protect our savings and support our families.
Whilst focusing on how to stay afloat, we also have to acknowledge that the financial crisis is a periodical event with infinite opportunities. I believe that today is a great time to recognize this opportunity and prepare for our future long-term investment strategy. Hence, we should take advantage of dropping prices in the stock market and build our investment portfolio.
Moreover, we should embrace new blockchain technology and find our way how to adapt to the evolving digital crypto economy. Today we are witnessing the emergence of new digital asset classes and the prominent crypto industry. With crypto, there is an amazing opportunity to increase our wealth over time and change our life.
A mindset of a successful investor
Therefore, to develop a mindset of a successful investor, we should all first learn how to manage personal finances and budget well, and focus on building our long-term investment portfolio.
In the next section of this article, I will explain why it’s important to manage personal finances and what wealth is.
Why do you need to manage your finances?
If you would like to become an investor, then the first step will be to learn how to manage personal finances. It is very important to be cognisant of the income and your daily life expenditures to create your future investment capital. You don’t need any financial education to understand how to manage your money and look after own budget. In my opinion, it is determined by what wealth means to us and personal financial habits that we may develop throughout our life.
Unfortunately, many people still find confusing how to manage their finances. There is seems to be a lack of basic understanding of money, wealth, and budgeting among the general population.
Many of us often develop the habits of shopping excessively, borrowing funds from banks and credit cards, or easily spending hard-earned money on frequent dining out or holiday trips. Although I do agree that we have to treat ourselves with such rewards from time to time, however, we have to use good judgment and avoid running into the debt.
Regardless of the financial crisis or any other current life difficulty, you are the most vulnerable person on the planet if you don’t have any savings. Hence, if you are relying on your weekly pay cheque then now is the time to realise how important your savings could be one day. Additionally, you can use some of your savings to invest today in a better quality of life in the future. With that said, I would encourage you to watch your savings and increase your wealth by investing.
Most successful investors follow these simple rules:
Manage personal finances well, look after their budget and watch savings;
Look for opportunities to invest part of their savings, build a diversified life portfolio to multiply their wealth.
Before I break down the Budget and Financial strategy into details in my next article, I would like to mention about wealth. And by saying that word I don’t necessarily mean that you have to be a money-driven person. Neither you have to only focus on how to make money. However, we all need money to sustain a reasonably good standard of life, support our family, enjoy our hobbies, save for retirement. And most importantly, do not worry about uncertainties that we might face in the future. To some people, wealth is always going to mean money, but we can’t be all wealthy in that way. Despite wealth should be a dominant part of our well-balanced life portfolio, we should also consider good health, mental wellbeing, family, hobbies, or any other life priorities.
So, what is the true meaning of wealth?
In financial terms, wealth measures the value of all financial physical and intangible assets owned by a person. It is determined by taking the total market value of all possessions and then subtracting all debts and liabilities. The net worth of wealth is the accumulation of scarce recourses over a lifetime.
In simple terms, wealth is a great quantity of money, valuable possessions, real property, house, or other riches that people should accumulate over time. People often are focused on and generate ‘money’ wealth as part of their retirement plan to ensure that they have enough living funds.
Therefore, my general advice for people would be to set the total figure of their net worth ‘money’ wealth for the retiring age. This will greatly help you to determine the financial investment goals and develop a lifetime financial strategy. Moreover, you will be able to plan and manage your budget better. Of course, you have to be realistic with the numbers as this hugely depends on your current income. It is fine to dream about one million dollars for your retirement fund. However, are you going to achieve it with your current job and financial habits?
How much ‘money’ wealth do I need to accumulate?
Here I am going to give you an example of how to set your ‘money’ wealth goal for retirement. Alternatively, you can apply this to determine the investment capital, emergency fund, or any other savings goals whilst planning your budget.
Let’s say that you would like to generate $360,000 worth of net ‘money’ wealth for your retirement. And you have 30 more years to work before that date. I recommend that you use a calculator and work backward to determine the amount of money that you have to put aside on a weekly or monthly basis.
For this purpose, you might want to use the internet-based financial calculator here.
$360,000 / 30 years = $12,000 per 1 year
$12,000 / 12 months = $1,000 per 1 month
$1,000 / 4 weeks = $250 per week.
After some basic calculations, we have determined that for a person to accumulate $360,000 worth ‘money’ wealth for retirement, $250 of weekly savings will be required. Therefore, we should include this amount (let’s call it ‘retirement wealth’) whilst planning the budget. Moreover, we have to consider the ‘retirement wealth’ when developing our financial strategy.
We are living in a world of many uncertainties and infinite opportunities. It is always good to be prepared for challenging times and find ways to increase your wealth. However, this can only be done if you understand how to manage personal finances and have a mentality of a ‘smart’ investor.
In my next article, I will share tips on how to plan your budget and define a financial strategy for managing personal finances and savings.
And here is my next photo of New Zealand beautiful landscapes!!