When asked what is personal finance, most people make it unnecessarily complicated by naming a bunch of jargon such as budget, investment, tax, retirement, etc.
However, in its essence, personal finance is simply all the decisions you make to manage your money coming in and going out, for today and into the future.
What Is Personal Finance Success Like?
When you have a personal finance game plan for your life, it means that your finances are helping you get closer to the life you ultimately want to live.
Whether that means traveling for half the year, or retiring early so that you can focus your time and energy on working with nonprofits to create the societal change you want to see.
For example, if asked what is personal finance success for me, I would say it means to work with companies that are changing the world to one I would like to see.
It means being able to travel 3-4 months a year.
It means having the space to create whatever I envision, and most importantly it means creating space to host family and friends so that I’m always surrounded by loved ones.
4 Foundations Required For Personal Finance Success
Regardless of your desires, there are only 4 things you have to remember to be on the path to financial success.
1. Clarity for life
If you do not know what type of life you want to live, it’s really hard to know when you would achieve financial success.
A great way to start building clarity on the life you want to live is through the 3 Most Important Questions.
Once you have a list of things you’d like to experience or the person you want to be/the life you want to live, it’s time to ask yourself, “When do you want to get there and how much do you think it will cost?”
By having this information, you will be able to start associating financial goals to your life goals and to your age.
Now you can use money as a benchmark to get yourself to live the life you want.
2. Cash flow
Most people like to call this the budget, but for us, cash flow makes more sense.
All cash flow means is how much money do you have coming in, and how much money do you have going out.
The budget part only focuses on the money going out.
The key to getting enough money to live the life you want is centered around the difference between the money you have coming in and going out.
Since we’ve already covered the part about money going out (and how you can create a budget around your 3 MIQ), we will focus here on the money coming in.
The best way to increase the amount of money coming in is to spend more time developing your personal skills (because the return of investment in skill development is superior to any other investment you make).
In my case, I spent a lot of time and money learning digital advertising which has led me to a 30% increase in salary within a year.
Another great way to increase the money coming in is to see if there is a way for you to bring in extra money by doing what you love.
In my case, I run a personal finance site that brings in money and allows me to pay for some of my travels.
The purpose of insurance is to protect you and your loved ones from unlikely circumstances that would not only completely destroy any life goals you have, but will most likely hurt your current lifestyle as well.
It’s simply one of those things that you’re better off paying for so that you can have that peace of mind that everyone is protected.
If you’re in a country that gives you free insurance, then you only need to worry about life insurance.
However, if you’re not, you should start to understand the different types of insurance.
Although I won’t go into more details here, please do not simply skip this step. This is a serious foundation in your life that you should not take lightly.
Now that we have taken care of our foundations, the leftover money should be invested in order for you to reach your life goals faster.
In the cash flow step, the money we bring in tends to be more active. It only exists if we trade our time for it.
However, now that we’ve taken our money coming in and properly allocated the money going out (to live a life that leads us to the life we want to ultimately live), the remainder of the money is meant to work for us.
We can get the money to work for us by investing. Some investment idea options are:
- Real estate
- 401k (or some other retirement plan that your government has)
- Peer to peer lending
- Exchange traded funds
We won’t go into the details of each type of investment here, but if you’re someone who doesn’t enjoy learning how to invest, then some generally good options are using robo advisors or investing in exchange-traded funds (as per Warren Buffet’s suggestion).
By doing this, you are going to be doing better than most other people and getting to your life goal is going to be very possible.
What Is Personal Finance Success For You?
What is personal finance success for you?
Is it to create a lifestyle where you can take care of your loved ones at any point?
Or is it perhaps to attend Mindvalley University every year?
Either way, you now know the key to life success is your financial success. And you know that your financial success is to simply establish clarity on the life you want to live and to increase your cash flow so that you can invest the additional money.
So, again, what is personal finance success for you? Share your stories with us in the comments below!