PERSONAL FINANCE: WHAT IT IS AND ITS IMPORTANCE. (CHRISTIAN MILLENNIALS)

Estimated reading time: 9 minutes

With the current talks on recession and inflation, I thought it was time that we talk about personal finance. You see since money is the currency used in transactions; it is important as Christians we understand how to successfully handle our finances. After all, how can we be a light when we are also drowning as the world is? And how will we be the head when we are drowning in debt? And before we can even talk about it we need to define personal finance and understand why personal finance is important. So if this is something that interests you, then keep on reading.

• Personal finance: definition
• What is the importance of personal finance?
• What are the four pillars of personal finance?
  • Assets as a pillar of personal finance
  • Liabilities.
  • Income
  • Expenses
• These 5 keys will help you successfully manage your personal finances
  • Detail your financial goal. 
  • Make and stick to a budget. 
  • Pay off debt. 
  • Seek professional help. 
  • Have a flexible plan.
• Conclusion

Personal finance: definition

According to the Corporate Finance Institute personal finance is planning and managing personal financial activities such as income generation, spending, saving, investing, and protection. Managing one’s personal finances can be summarized in a budget or financial plan. And to simplify this even further, we can say that personal finance is analyzing what comes in, what goes out, and what is retained in order to effectively plan for the future. And this only stems from wisdom. Again, how can you laugh at the future when you have not planned for it? (Remember the proverbs 31 woman?)

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Personal finance encompasses budgeting, banking, insurance, mortgages, investments, retirement, tax, and estate planning.

PRINCIPLES OF PERSONAL FINANCIAL MANAGEMENT (5 UNIQUE KEYS FOR MILLENIALS)

What is the importance of personal finance?

Personal finance ensures that you successfully meet your financial goal. Without understanding what personal finance is, you will never get to know how to manage your finances and also meet your financial goals.

Personal finance is important because it leads to a healthier life. Having a clear and structured plan leads to less stress, and less anxiety and you have close to no bouts of depression. According to a recent CNN survey, 71% of Americans identify money as a significant cause of stress in their lives.

5 UNIQUE FINANCIAL TRUTHS THAT CHRISTIANS NEED TO KNOW.

What are the four pillars of personal finance?

Understanding the four pillars of personal finance will help you be successful at managing your finances and set you up for wealth in the future. The four pillars of personal finance include:

• Assets
• Liabilities
• Income
• Expenses

Assets as a pillar of personal finance

Assets simply put are what you own and whose value can be quickly converted into cash. Some of most common assets include

• Stocks
• Land
• Precious jewels
• Investments
• Cash in your savings account
• Portfolios in your hedge funds and mutual funds
• Reits
• 401k etc.

Your house may or may not be considered an asset. Your home is considered an asset if it is either fully paid or if the value of your house > than your total mortgage.

The goal is to always accumulate assets as they can get you out of a ditch should you find yourself in one.

Liabilities.

The best example of a liability is your mortgage or any other debt you owe. Simply put liabilities are what you owe. Liabilities are obligations owed to others. Examples of liabilities include:

• student loans
• Car loans
• Credit cards
• Mortgage
• Taxes owed
• Personal loans

The importance of understanding both your assets and liabilities is that they help you understand your financial health. This means that you can easily gauge your financial future and know if your assets can meet your obligation. Having more assets than liabilities is always a bad thing. As that means you cannot meet your obligations, which can lead to you filing for bankruptcy. However,, understanding your financial health is not enough as it is more future-focused. This is where the other two come in. It is important to understand your expenses and income which helps with your day-to-day life.

Income

Income is defined as money that you generate. This is the compensation you receive as an individual. It is an inflow that is money coming in. And examples of income include.

• Wages and salaries from employers
• Dividends from your investment
• Salary from your side-hustle
• Pension
• Rent paid on your rental homes.
• Profit-sharing businesses.

Income increases your disposable income and helps you meet your obligations as well as cater to your expenses. One thing to note is that personal income is not equal to discretionary income. Personal income is money before you pay your taxes, while discretionary income is what is left after you pay your taxes.

Expenses

Expenses are outflows and they represent all areas where money is going. They lead to a decrease in cash and disposable income. These are expenses that are immediately consumed Examples of expenses include.

• Utility bills
• Maintenance
• Taxes
• Rent
• Food
• Household expenses
• Personal expenses
• Car expenses
• Supplies
• Consumables etc.

Just to summarize expenses are outflows that are either paid monthly or are dealt with as they occur. The importance of personal finance is that it will help you have a budget that will track all the expenses and help you find ways to cut back on unnecessary expenses too.

These 5 keys will help you successfully manage your personal finances

Detail your financial goal. 

Studies have shown that a goal is more than likely to be achieved when we write it down. Again also in writing down we gain the clarity we need. You see in the book of Habakkuk l, God told him to write the vision down and make it plain. Making it plain is what will help you to achieve your goals to begin with. And to do this you need to be specific. You cannot write vague points like you are saving for you future. What exactly are you saving for and why. So a wonderful goal could look like this. 

I am saving for my retirement because I want to retire by 40. A good action plan is always 

1. Specific
2. Measurable
3. Attainable
4. Relevant
5. Time-based

And remember, you can only retire early when you have a plan. So how are you going to do it? If it is through saving, how much money do you need to put away every month? How old are you? Have you factored in inflation? What interest will you earn from your savings account? Therefore writing it down is important. 

Also it is important to organize your goals under both short-term and long-term. This will help you prioritize. And also it also avoids you from feeling overwhelmed as you will know what you need to tackle first and so on. 

Make and stick to a budget. 

Having factored in your financial goals, then make a budget by simply listing your source of income and the amount and subtracting your expenses, and also factoring in the amount you need to save to achieve your goals. As you do so I would also advise you to have an emergency fund as this will prevent you from bankruptcy in the event of an unexpected situation like the loss of a job or other unavoidable situations. Always remember that a budget should be unique to your situation. After all, you are the one who really knows your disposable income. 

Some tips that will help you stick to a budget include. 

1. Having a software or a sheet that tracks all your expenses
2. Planning your expenses in advance to avoid overspending in your budget. 
3. Being aware of your future goals so as to encourage delayed gratification. 
4. Celebrating the small wins. This will motivate you to keep going. 

Pay off debt. 

One expense that messes with our finances is debt. And the sooner you pay your debt, the better. Even the Bible reminds us that a borrower is a slave to the lender. So if you want to be successful in your personal finance journey, it is imperative that you work on paying off your debt. And you start off by paying the debt with the higher interest first. This is because the higher interest translates to your spending even more. And again, the economy and inflation can lead you to pay way more than the money given to you. So again, focus on paying off debt. And some tips that will help with this include. 

1. Looking for areas you can cut on expenses to make cash available to pay off your debt. 
2. Getting a second job or starting a side business if you can. 
3. Selling unused stuff. 
4. Saving up on an emergency fund so that you don’t add up on debt in the event of an emergency 

Seek professional help. 

Asking for help does not make you weak or unwise. In fact, it makes you wise. That is why the Bible tells us that in the presence of wise counsel, there is victory and success. And the wise are not afraid of advice or discipline because they understand the key to knowledge is having the ability to listen. So whether it is getting a financial advisor or a financial coach, do that.

Remember it is your life and you can only set yourself up when you are willing to seek help. God even tells us we have not because we ask not. How will someone offer advice when they don’t know you need it? And how will you ever gain when you are afraid to ask for help? Ever noticed how the wealthy are always surrounded by experts in the field they need help in? Borrow a leaf from them and do the same. You can never know everything. And it is better to be a master of one than to know everything because we find success in mastery. 

Have a flexible plan.

Remember, situations change. Whether it is through making a life-changing decision like marriage or having a child. You need to have a plan that is flexible and you can tweak based on your current circumstance. Don’t forget life does what life does best and when that happens you need to adjust your plan accordingly.

Conclusion

When it comes to personal finance. It is important to understand your view of money, your education about money, and your relationship with money. Remember every time you want to experience the transformation you need to change your mind and thinking. It all starts in the mind. That is why Paul told us in Romans 12:2 that transformation comes from the renewing of the mind. Your attitude will determine your altitude.

In your personal finance journey, I want you to take note of:

• Your spending habits.
• Your view on protection such as life insurance and having a trust.
• Saving and investing habits
• How you view money and how you view seeking professional help.

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These keys will help you know where you are at and where you are going. It is never too late to start your personal finance journey and make it a success.