Now Reading
Personal Finance – Here’s What We Know so Far!

Personal Finance – Here’s What We Know so Far!

If you invested $4.50 of your weekly paycheck into a savings account at a 2.25% interest rate (paid weekly) you’d be in line for a payout of just over $10k in 30 years.

But If you really want to take control of your personal finance, the first step is to not let anyone dazzle you with this type of rhetoric.

Just to be clear, I’m not a financial adviser and this is not financial advice.

In no particular order, I share a few things to know when having conversations on personal finance.

Financial position

It’s interesting how we obsess over the world’s richest, ranked by net worth. But how much do we understand or know our own net worth? I worked mine out while writing this. Yes, I’m guilty of not knowing my net worth. I’m not exactly making the rich list but — enough about me — this metric is quite useful because it tells you, in one figure, what your financial health status is. To work it out, add up your assets (investments, deposits, savings, property valuation, debts receivables etc) and then subtract from this total your liabilities (credit cards, loans, other financial commitments etc).

Net worth = Assets – Liabilities

You want your assets to be significantly more than your liabilities. This gives you a positive net worth. Broadly, it is a mid to long-term health check to show where you should be working towards.

Investment and wealth accumulation

This is easily one of the more popular discussions on the subject of personal finance. Investing gives you an opportunity to grow your wealth by putting resources towards a profitable venture. Investment opportunities (glorified scams included) have increased in number and complexity over the years. Here’s the caveat: every investment carries the risk of loss. It will always be a trade-off between risk and return. Whether investing in stocks, bonds, IPOs, Forex trading or index funds, the key to wise investment is to know what you’re getting into. Know the risk and be clear on how much of it you’re willing to take. Do your homework. While there’s room for ‘expert advice’, be sure not to follow it blindly. If there are too many unknowns, you end up having to trust an expert opinion you cannot make sense of, even partially. You want to have enough information to agree with the expert.

Spending money

Many personal finance woes start in this little space right here. It’s a lot easier to know how much you earn than it is to know how much you spend because what you earn is generally the one figure weekly (or however frequently) whereas you track and add up your expenses to know what you spend. True, most of it is recurring and non-discretionary like rent/mortgage, grocery, transport and phone bills, etc. But you still have to take the time to add it up and then stay on it. This is a necessary evil. While it’s ideal to spend less than you earn, credit blurs the lines between what you can and cannot afford (quite remarkably) by allowing you spend what you haven’t earned.

Saving money

On saving, the general rule is to have 3–6 months of your net earnings in emergency funds as a buffer. This may seem like a lot, but let’s do the maths. It will take 30 months to save 3 months of earnings at 10% per paycheck. Saving 7% of your earnings at a time, it’ll take 43 months to achieve the same feat. This is not a short-term goal, but with discipline it’s possible.

With emergency funds set aside, you can focus on long-term savings. The point of an emergency fund is that you’re not dipping into your long-term savings when an emergency hits.

Be sure to use a savings account for this because they rarely attract transaction or account keeping fees.

Saving money (like spending wisely) is a discipline to cultivate intentionally. Have goals and reward milestone achievements along the way. If you’re struggling to save, here’s a tip: incremental goal-setting would help make saving less daunting, especially if you’re starting from zero.

Earning money

On earnings, this is likely the one thing you may not see as being within your control because someone else gives it to you. Like most people, you probably don’t feel like your earnings are close enough to your value. Stay focused on your value and earnings will follow. Here are three tips:

  1. Find your passion and grow in it. If you’re already working in a space you’re passionate about, great. If not, find it. The thing with earning from work you’re not that passionate about is that it will never be enough because the work is already not fulfilling. It’s an intrinsically incomplete package. Although my training is in finance, I found my passion for education through a project management contract which exposed me to the many activities that go into delivering education as a service. I’ve intentionally increased my knowledge in the space ever since and it’s opened new opportunities for me.
  2. Get into a productive habit: read, write, volunteer, join a club, speak etc. Financial wealth is great no doubt. But it’s not the only source of a rich life. Whether or not you monetise it, a productive habit will help you feel more relevant and valuable as a person. One of my productive habits is writing articles; like this one.
  3. Find a mentor: Many years ago, a friend introduced me to the teachings of Stephen Covey. Although I never met him personally, I consider him a mentor because I find his life teachings highly practical and transformative.

Taxes and tax planning

This article would be incomplete without a mention of taxes. Is this an honourable mention? You decide. Either way, taxes are a reality; making tax planning a necessity. The tax authorities often issue regulations to incentivize action in addressing a financial concern. It’s good to know of these opportunities to ease your tax bill legitimately. Here are two examples:

See Also

In the US the ‘401 (k) plan’ allows employees (and their employers) to make tax-deferred contributions out of earnings, towards their retirement savings through a pension plan. They tax the contributions only when the employee retires or withdraws it from the fund.

At the time of writing this, the Australian Tax Office plans to allow withdrawals of voluntary contributions from the retirement fund (known here as superannuation) up to a limit at concessional tax rates to allow first-time home buyers to put a deposit towards their property.

It’s also good to have a general understanding of your tax framework. What is considered income? And what is a deductible? What types of personal circumstances may affect the overall tax bill?

Taking the time to understand your tax return form is a good idea. It helps you answer a lot of basic questions and provides the knowledge base for more informed further inquiry.

In Summary

Personal finance is really about taking personal responsibility for your financial health — both in the short and long-term. It works out better when you prioritise it.

I hope you can apply some of these ideas to get results.

If you’d like to read more practical advice on personal finance, here’s 50 Personal Finance Habits Everyone Should Follow from TIME Magazine.

I’d love to hear from you. Please share your thoughts in the comment section.


View Comments (0)

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

© 2023 Stephanie's Looking Glass. All Rights Reserved.

Scroll To Top