Personal Finance for Beginners

For most people, the New Year comes with new personal finance goals – and 2021 is no exception. However, whether you are making an investment, creating a budget, or working on your finances, you need a lot of information.

Personal finance is a sore subject for many people. And it's often not because they lack money – first and foremost, they lack the financial literacy to handle their money. If you find yourself overspending, living above your means, or neck-deep in debt, something has to change.

Formal education will make you a living; self-education will make you a fortune. (Jim Rohn)

As of October 2020, the average personal savings rate in U.S. households was 13.6%. Additionally, most households live from paycheck to paycheck. Learning the basics of how money works will increase your savings rate and ensure financial independence. To help you reach your financial goals, we put together a short guide to personal finance for beginners!

What is personal finance?

Personal finance refers to your ability to manage, save, and invest your money. It is about your financial goals and how you plan to achieve them. It also focuses on:

• Spending

• Saving

• Taxes

• Investing

• Insurance

• Retirement

• Budgeting

• Loans and credit facilities

• Estate planning

For most people, all of the above seem associated with the rich and famous exclusively. However, learning how to manage your money is a skill set that each one of us should have – and here's why.

Why is personal finance important?

Financial literacy creates a clear path toward financial independence – but so does winning the lottery, right?

Wrong.

Winning the lottery makes you rich instantly, but it does not guarantee the free money will last. However, learning how to manage your money can guarantee long-term financial growth and sustainable financial habits. Personal finance for beginners can help you:

• Reduce the burden of debt

• Increase your net worth

• Increase your chances of financial freedom

• Improve your quality of life

Clearly, getting a good grasp on your finances does more than increasing your bank balance. But how exactly can you improve your finances?

How to improve your personal finance

1. Budgeting: Live within your means.

A lot has been said about living within your means. However, nothing sums it up better than this quote by Calvin Coolidge:

There is no dignity quite so impressive and no independence quite so important as living within your means.

Living within your means does not mean giving up everything but the basic necessities. Instead, it encourages you to create and follow a sustainable lifestyle – one that allows you to cater to all your needs within your current financial capabilities.

Look at it this way. If you earn $800 a month but spend $1,000 a month due to frivolous spending, you will accrue a lot of debt. However, if you keep your expenses low, you will meet your needs and avoid the debt trap. If you desperately need extra money for your lifestyle, think of ways to earn more – e.g., making money online by using Honeygain.

2. Pay down high-interest debts

Debt can be crippling when it's mishandled. Taking a loan or delaying your credit card payments often comes with additional charges and interest payments. Because of this, your debt can keep growing even if you do not spend any more money.

Our advice is to ensure that you negotiate and confirm interest rates with loan provider or credit card company. This way, you know what you are getting into. Remember, a little goes a long way, so keep your loan repayments stable and regular. Consider channeling some of your smart passive income into debt repayment to quicken your repayment process.

3. Create an emergency fund and take up an insurance policy

Emergency funds and insurance covers have one thing in common. They offer financial protection against disasters. Ideally, your emergency fund should cover up to 3 or so months of basic living expenses. If you lose your job, experience business failure, or a medical emergency, you have something to fall back on.

Insurance is more complicated. Taking up an unnecessary and expensive insurance policy is detrimental to your finances. Consult your peers and different insurance firms before making a decision. Additionally, you can ask yourself:

• Do I need it?

• Are the terms favorable?

• Can I afford the premiums?

• Is the company reliable?

• Does it provide adequate coverage?

4. Create a smart passive income stream

Passive income is a great way to develop your financial independence. You can use apps to make money online – e..g, Honeygain lets you earn effortlessly by simply running the application in the background of your Windows, macOS, Linux, or Android device.

Honeygain allows you to make money online by sharing your Internet connection and offers you numerous benefits. By generating passive income, you can meet all your financial needs and goals without stressing about it.

5. Make investments

One sure way of increasing your net worth is to make your money work for you. No millionaire or billionaire worth their salt ever made money by keeping their earnings in a savings account.

Don’t let your money sit around doing anything. If you have a stash of money that you don't need to use immediately, you can:

• Put it into stocks

• Invest in real estate

• Invest in a high-interest CD

• Invest in money market funds

• Start a business

6. Save for retirement

For most people, financial independence tends to wither after retirement. Without stable income or pensions, most retirees are forced to depend on their families. This often results in decreased quality of life and financial strain on households.

A great way to overcome this is by saving for your retirement in advance. You can do this by:

• Making regular contributions to your 401(K)

• Matching your employer's contributions to your 401(K) and taking advantage of this free money

• Establishing an individual retirement account (IRA)

• Reducing your expenses

• Automating your savings