Financial management is not exclusive to the rich, and ordinary people should also understand financial management. Is financial management really hard to learn? The answer is no, so here are some financial knowledge that ordinary people like you and me can understand.
Everyone desires to have more wealth. Wealth is very important. Everyone knows that, but when it comes to financial management, many people start to feel confused. Because many people think that financial management is complicated. There are many wealth management products, including stocks and bonds, funds, wealth management products, paper gold, foreign exchange, P2P...etc. These investment types seem complicated. Therefore, many people prefer to store their money in the bank because they think financial management is too complex.
But in fact financial management is neither difficult nor complicated, and ordinary people can understand it. For financial management, ordinary people only need to understand from two aspects, one is how to make a financial plan, and the other is how to invest.
In real life, many people misunderstand the concept of financial management. They think that financial management is investment. In fact, the starting point of financial management is not to invest, but to recognize what you are pursuing. You can understand from the following three aspects: First, why is money important? Second, what is your wealth goal? Third, what is your current debt?
01 Why is money important?
Money is needed everywhere in life, so money is very important. If you have enough wealth, you will become more free. Think about it now. If your wealth is enough for you to live freely, you don't have to work hard every day, what do you want to do most? travel? read? fitness? Take a blank sheet of paper and write down why you think money is important. You will find the most important things in your mind so that you will not be disturbed by other trivial matters. After you realize why money is important, you will move on to the second stage to set your financial goals. The future is always full of variables, so you only need to set a general goal.
02 Your wealth goal
Every country has a five-year plan and a ten-year plan, and each individuals should have too. They should have their own short-term, medium-term, and long-term plans. Just like when you plan a trip, you must know which attraction you want to go to. How long do you plan to spend on buying your favorite car, or changing to a new house, and how long will it take you to achieve financial freedom? Then calculate how much wealth you need to achieve these goals, how much money you need to become rich and free in your city, and write them on a piece of paper.
03 How much debt do you have?
Next is the third step: write down how much debt you have. Many people don't want to list their debts, because they feel embarrassed, and don't want to think about the mobile phones they bought in installments, the credit cards they owed, and the 30-year mortgage they took on. Learn to face it from now on, because only when you have a clear understanding of your financial situation can you better achieve your financial goals.
Here is a simple method. You take a piece of paper and draw a vertical line in the middle of the paper. List your assets on the left, such as deposits, investments, etc. List your debts, credit card debts, mortgages, car loans, etc on the right. The total assets on the left minus the total liabilities on the right is your total. Isn't it simple? Okay, after finishing the above content, let's take one more step and look at savings and spending..
04 Where does the money come from?
When you don't have additional income, saving money is the best way. If you want to save money, you must learn how to save money. There are always many places in your life where you can spend money. For example, you must pay your mortgage on time, change your phone frequently, and eat out at a nearby gourmet restaurant. So how can we save money in this area? The answer is simple, that is, continue to write a list of expenditures. After writing the list for a while, you will find that there are some things you don't need to buy. This will help you develop the habit of spending money on important things, while reducing your spending on unnecessary things. The amount of savings will increase, and deposits will naturally increase.
Save money early, no matter if you are in your twenties or thirties, and no matter what spending habits you have in the past, now you try to act immediately and start your savings plan. Don't wait until you had entered society for many years without any savings. Not to mention that you will need money during an emergency.
05 How to invest
The next step is to know how to invest. The entire investment activity probably contains three items. The first is to figure out whether you want to buy life insurance; second, you have to give priority to debt repayment; third, to understand the difference between investment and speculation.
When it comes to insurance, many people find it hard to face it, but as a rational investor, they must face problems. If your family depends on you financially, then you should have insurance.
Then, priority is given to paying off debts owed. Why did I say that? Because repayment of debt is also an investment, your debt requires interest. If your investment income is not as high as the interest on your debt, it is wise to repay the debt rationally. In addition, there are uncertainties in investment, so the best investment is to give priority to debt repayment.
06 A clear distinction between investment and speculation
There are millions of investors, and I don’t know how many have made money. But when it comes to financial management, many people still consider which stocks to recommend. Which industry is better these days? Many investors will hear some gossip from relatives, friends, colleagues, relatives of colleagues, etc. , Saying that a stock will go up several times, so they put all their money, even money borrowed from friends, into that stock. What happened in the end? I have not heard of how many people actually make a lot of money.
Why are many investors still unable to make money in a bull market? What is the problem? Why do investors still lose money when the market rises? The reason is that they confuse investment with speculation, and a little personal understanding of individual stocks is far from providing income protection.
We still need to know how to diversify investment risks.
The classic philosophy of financial management is not to put all the eggs in
one basket, in case there is a hole in the basket, all the eggs are gone.
Read also:
The eight golden periods of financial management in life, have you missed them?
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