Personal finance is an important aspect of managing money. Knowing your income, spending, and saving habits will set you up for financial success.
If the thought of financial planning makes you wince, sigh, or roll your eyes, you’re not alone. For all the non-business-whiz-kids out there, personal finances can feel like a mountain of information that you’ll never be able to climb.
In reality, there are a few accessible and basic principles that can help you and your family stay on a safe and thriving financial path, beginning with financial education.
Looking for answers to the questions: “what is personal finance?” and “why is it important?” We’ve got the basics covered below, along with practical money managing tips to get started.
At a foundational level, personal finance refers to the contents, planning, and care of your resources and obligations. These are comprised of:
Personal finance in terms of active management helps you:
Understanding the terms and principles can help, but why is it important to have a personal financial plan?
Taking control of your finances—no matter how big or small the dollars are—can provide guidance, protection, and control in your life. No amount of money allows you to live forever in a state of perfect bliss, but financial planning helps you build a thicker cushion between your family and the hardships life throws at you and helps you make more informed financial decisions.
The decisions and arrangements you make with your personal finances can help you:
While successful financial planning is the route to building wealth over time, does money buy happiness in addition to providing protection against stresses and hardships that it can reduce?
Recent analysis of two respected research studies (Kahneman and Deaton in 2010 and Killingsworth in 2021) concludes that there is indeed a correlation between happiness and income level, although it plateaus somewhere around the six-digit level.1
If you’ve been working on money matters by common sense alone, you’ve likely picked up some good financial management habits. But, like any aspect of your life, personal finance requires intentional planning, action, and follow up in order to identify and meet goals.
There are four basic steps to creating a financial plan:
We’re looking for a range of life goals that start with your current reality, and extend to what can be possible to achieve financial stability. These might include:
Goals help motivate us toward specific outcomes instead of just figuring out how to save money. They can make a difference in deciding whether to take on overtime hours, train for a new position, or skip the daily trip to Starbucks.
Making and saving money helps you live the life that you want to live with financial freedom, and avoid some of the effects of the inevitable challenges your family will face. Setting goals is a way to positively connect your finances to your values.
What money is coming in, going out, growing, or costing you interest and fees? Before you figure out how to set your goals into action, you need to know what your current financial situation is, as close to the penny as possible. This is why it’s helpful to know how to start a budget.
A budget primarily identifies two components of your money: income and expenses. It provides a monthly view of the amount and timing of:
You can set up a budget on an app or a spreadsheet; pen and paper can be a starting point, but you’ll want the ability to make calculations, sort charges into subcategories, and compare figures from month to month. Check with your credit union or bank for suggestions on downloading or connecting your spending plan data to budget software.
If your goals tell you what you want to happen, and your budget tells you what’s actually going on, your plan is the map between the two. Adjusting your budget to help meet your financial goals could include:
Hopefully you’ll identify some changes that can be easily addressed, but your personal financial management plan may also break down larger steps. For instance, if your monthly expenses leave you living paycheck to paycheck, you may want to set a goal to increase your income.
Let’s say your goal is to secure a raise at your current job. The plan that backs up this goal might break down into steps such as:
If we continue with the example above of a goal to increase income, then what happens if the company says they’ll consider a raise next year but can’t grant your request now? You need a way to keep moving forward toward the goal rather than being thwarted when one approach meets a stumbling block. In this case, perhaps you switch focus to researching opportunities at other companies that will provide an immediate income boost.
A review and adjustment cycle for your financial planning helps you evaluate actions and results, and make changes to keep moving forward toward financial security. When you’re just getting started, you may want to do either a monthly or quarterly review and revision.
Eventually, annual or biannual reviews can be used to tweak numbers, goals, and plans to reflect the changes in your lifestyle and circumstances over time.
A full deep dive into financial planning could mean spending all day, every day, on it.
The good news is that there are already people who’ve spent that time learning the theories, philosophies, and tactics to help you expand your income, grow wealth, and protect your assets—and they’re more than ready to answer that “why is personal finance important” question.
Some areas that can benefit from guidance include:
Financial planning help isn’t just for the richest one percent. There are resources for all income and asset ranges. Check out the financial literacy educational resources, tools, and advisory services available from:
When you’re considering how to work on your financial goals and build wealth, don’t forget to check on the current value of your equity and consider how you can leverage it.
For many families, home equity is one of the largest—and most underutilized—assets in a financial portfolio. Real estate property values tend to increase over time, plus you’re paying down your mortgage with each monthly payment.
If you’re looking to unlock the cash value of your equity without hiring movers and finding a new place to live, a sale-leaseback may be an option that works for you. With Truehold's sale-leaseback, you can continue living in your home and leverage the full value of its equity without taking out loans.
A sale-leaseback combines the sale of your home to an investor-landlord with a lease agreement and a legal guarantee to remain in your home as a renter as long as you choose. Along with freeing up cash to invest or use for critical needs, you’ll also gain freedom from the cost and stress of major repairs and maintenance, homeowners liability, and property tax.
Ready to learn more? Our trusted advisors can tell you more and help discover whether Truehold is the right solution for you.
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