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This introductory post covers the nature and scope of personal finance. It then explains how personal finance literacy boosts your financial security, freedom and prosperity.
Introduction
People that lack personal finance literacy or skills can spend their entire lives working for money, without ever having their money to also work for them. Acquiring financial literacy leads you to understand all the facts, tools, and principles you need to have financial security and freedom and to make investments for sustaining your financial prosperity.
You’ll agree with me that money touches every aspect of our lives, if we fail to learn how to source and manage it, we can live with endless miseries, stress and servitude to moneylenders. It’s not how much you earn that determines your financial security or how much you invest for financial growth and prosperity, what matters most, is how you put your knowledge of personal finance into practice.
As I've stated in my paper, Personal Finance: Positioning Breastfeeding on Family Balance Sheet "there are three types of finance; public finance for government and its institutions, corporate finance for businesses, and personal finance for groups and individuals." Here we're concerned with personal finance.
Meaning and Significance of Personal Finance
Personal finance refers to how you get, spend, save, invest, and manage the financial resources you have. Its main goal is to ensure prudence, prosperity, financial security and financial freedom. It involves the sourcing of money, spending, saving and investment strategies and methods. On the significance of personal finance, it should be noted that people who learn personal finance skills can live a healthy, happy, and secure life. But how does this happen? The answer is simple.
Learning personal finance skills enables you to make better-informed decisions about earning, saving, spending, and investing. It helps you to manage your spending, budget your money and develop the habit of saving consistently. Learning about personal finance can also promote your financial stability and help you avoid debt, bankruptcy, and depression.
Scope of Personal Finance
Personal finance covers a wide range of topics. They include the following:
Income generation: how you get the income to spend, save and invest.
Budgeting: this is a plan on what to do with the money you have or expect to get.
Spending: This refers to your expenses on rent, taxes, health care, education, transport, recreation, goods, services, debt payments, donations, etc.
Saving: this is about setting aside a portion of your income for investment. or for meeting unexpected needs and emergencies.
Banking: this has to do with where and how to keep excess money for security, convenience, etc., or for making some savings.
Insurance: this is about managing risks associated with your life, assets and investments.
Loans and mortgages: This is about sourcing funds from creditors and getting housing loans and how to repay them.
Investment: This has to do with using money to venture into businesses that can yield returns and increase your wealth.
Retirement planning: This is the plan that wise employees make as regards their financial position after retirement.
Tax: this is about payment of taxes and how they reduce the disposable income of the payee.
Zakat and charity plans: this is about planning for payment of zakat out of wealth of Muslims that reaches a specific amount, and also for spending on charitable causes that bring benefits to humanity.
Finally, personal finance also covers several tips on specific financial literacy skills like how to make online payments safely, how to share to the security pins of your ATM cards with your kids and housemaids without problems, how to generate QR codes for your business, etc.
Having talked about the nature and scope of personal finance, it’s time for explaining how financial literacy, that is, acquiring knowledge and skills related to personal finance, can help in boosting your financial security, freedom and prosperity.
Your financial security means your continuous access to adequate finance for meeting your reasonable financial obligations and wants. You feel secure when you can meet these needs and wants. Learning about income generation, saving methods and budgeting and investments can help in boosting your financial security.
Your financial freedom means your ability to use your money to get what you want without any hindrance coming from people and authorities providing you with loans and financial support, on what to do with your money, or on when and where to spend it. When your mastery of financial literacy and skill boosts your financial security, you inevitably gain financial freedom.
Financial prosperity refers to wealth or affluence. Having wealth does not necessarily mean becoming as rich as Bill Gates, Mark Zuckerberg or Mukesh Ambani. If you’re among the people destined to be like these people, no one can stop you from achieving that. But you’re still having financial prosperity if you’ve acquired some appreciable levels of financial security and freedom.
Conclusion
To recap, we’ve learnt that acquiring financial literacy leads you to understand all the facts, tools, and principles you need to have financial security and freedom and to make investments for sustaining your financial prosperity. We’ve learnt that Personal finance is about how you get, spend, save, invest, and manage the financial resources you have.
Its main goal is to ensure prudence, prosperity, financial security and financial freedom. It involves the sourcing of money, spending, saving and investment strategies and methods, and many more. Finally, we’ve seen how your mastery of financial literacy and skill can boost your financial security and inevitably help you gain financial freedom.
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