Personal finance is the application of finance principles on personal money management. It addresses the ways we earn, budget, spend and save money, taking into account different financial risk and future life events. Personal finance is an important aspect of everyday life yet this is hardly taught in schools and majority of people are financial illiterate. Many working adults are not knowledgeable about personal finance management and lack basic money-management skills. A study revealed that most financial literate people have college education or have parents who have retirement savings and investments. We don’t have to be professionals to learn about personal finance. Financial literacy is important, understanding personal finance will help us avoid or eliminate debt and plan our strategy to create wealth.
Living paycheck to paycheck is a common trait of people who do not have personal finance knowledge. They always feel they don’t have enough money. They are more gullible and easily fall into the debt trap because they don’t understand credit card terms, mortgages and payday loans. People lacking in practical financial knowledge have high levels of personal debt, bad credit history, bankruptcy and mortgage crisis. They continue to get into debt to buy fancy cars, modern homes, go to vacation places while only making minimum payments on their credit cards and student loans.
Learning personal finance is important in wealth building. Understanding personal finance will help us avoid and eliminate debt in our life. It will help us gain knowledge on how to create and track personal budgets and balance our checkbook. By keeping track of our spending and learning how to budget we will make good decisions about spending. We will also learn how to use a credit card responsibly by understanding interest rates, service fees and other tactics used by creditors. Personal finance will also help us understand different financial products like investments, loans and insurance. Debts and investments will be explored and we will find out how mortgages are used to finance home ownership. Studying personal finance will help us make smart money choices. Learning how to manage our money means learning how to be debt free.
Financial literacy courses help people into becoming better money managers. Growing number of people are starting to study personal finance not for a career but simply to understand their relationship with money and how they can control the outflow of personal funds to gain greater power in their lives. There are free online courses available on the web that teaches the basic foundation of personal finance. The improvement of our personal finances will impact our retirement. Studying personal finance is not just for professionals; today many secondary schools are starting to make financial literacy a part of their curriculum. 17 states in America are now requiring their high school students to take personal finance class before they graduate. The UK made personal finance instruction mandatory in high school since 2014. The UK just joined US, Australia, Singapore and Canada and New Zealand are following suit. By equipping our younger generation with personal finance we break the cycle of financial literacy and empower the youth to make informed financial decisions.