What is money management
Mention manage financial affairs, believe a lot of people can think of stock, fund, house property for the first time to wait, but know and hold these, calculate can manage financial affairs?
In fact, stocks and funds are only financial tools, holding these and really learn to manage money far from. So how to learn financial management, and through financial management to achieve financial freedom? What are the skills of financial management?
Why say financial management is manage life?
As the saying goes: you don’t manage money, money ignore you. Most people understand this, but why do so many people end up poorer? This is because they lack basic knowledge and understanding of financial management.
There are three life stages that everyone needs to understand:
The first stage is the “growing period” between the ages of 0 and 25. The so-called growth period, mainly from birth to work before this period. At this stage, we are basically dependent on our parents, including receiving compulsory education and higher education, and most of the expenses are paid by our parents.
The second stage is the “golden age” of 25 to 60. The golden age is when we can create the most wealth. At this stage, through hard work, our family income will be higher and higher, but at the same time, the expenses such as starting a family and raising children will be heavier and heavier. This period is like a reservoir of wealth, we use the “water” in the pool to pay our daily expenses, the more water, the lighter the burden of life, vice versa, the heavier the burden of life.
The third stage is the “old-age period” from age 60 to death. In the old-age period, most people have retired and basically depend on social security, savings and their children. Many people’s health conditions are not as good as before, and their health care and medical expenses are increasing. At the same time, their children may not have the time and energy to take care of them, so their life is under great pressure.
If you look at these three stages, you can see that we only have 35 golden years of working time to earn money.
We need to create enough wealth in those short 35 years to cover all the expenses of our entire lives. Therefore, the essence of financial management is to prolong our golden period and protect our wealth value through various reasonable methods, so as to maximize the lifetime consumption needs of individuals and families. In this sense, financial management is actually in rational life.
How to determine financial goals?
Just now we said that financial management is to manage life, but we must have a basic understanding of financial goals before financial management, in order to continuously promote the pace of realization. So how do we determine our financial goals? Start with the three keys to setting goals.
First, our initial goal should be to achieve financial security. As the name suggests, financial security means having enough money to deal with emergencies. For example, if you are suddenly laid off from your job or your family has a medical emergency, you need to have enough spare cash to tide you over. Under normal circumstances, you need to have at least six months of reserves. When not in use at ordinary times, these funds can also be purchased through short-term financial products, to obtain a small amount of interest.
Second, grasp the golden period to achieve financial security. Financial security means that a family’s finances are strong enough to meet all future financial expenses without a major financial crisis on the way to achieving life goals. The sound financial situation here is mainly reflected in having a stable and sufficient income, housing that meets the needs, adequate spare funds and appropriate insurance, which need to be gradually acquired through rational financial management.
Third, our ultimate goal is to achieve financial freedom. So what is financial freedom? Simply put, financial freedom is achieved when your monthly passive income exceeds your monthly expenses. By passive income, I mean income that doesn’t require a lot of effort or time. For example, if you’re not working, your rental property is sustainable; Still have, share out bonus regularly of bank interest, national debt, stock, you should buy only, can get interest regularly and share out bonus, these investment income belong to passive income.
How to set up your own financial system?
Hearing this, some people may be asking, “Why haven’t you told me what to do with my money?” The truth is, everyone’s financial situation is different, and no one set model is foolproof. In a sense, financial management is a system engineering. We need to make it according to our own specific situation, so that we can finally achieve financial goals. We can set up our own financial management system by following five modules.
The first module is the situation analysis. This is one of the most critical financial management modules. When it comes to money management, most people want to look for a standard answer from the outside, but few people will carefully analyze their own financial situation. In fact, the first thing we need to do is to analyze their own financial situation, and then on this basis to set feasible financial goals. For example, we can make a table of household income and expenditure every month, classify assets and liabilities, and summarize and review regularly. Usually after a year of continuous bookkeeping and analysis, we can get an accurate picture of our financial situation and lay a solid foundation for a detailed financial plan for the future.
The second module is consumption control. After getting used to the idea of continuous bookkeeping, we can try to create a budget for each item in our household expenses. For example, if you plan a long family vacation this Christmas, you can estimate and save enough money in the first half of the year instead of making plans at the end of the year. Or set a household budget at the beginning of the year. By checking each month that you’re spending within your limits, you’ll be able to keep your finances in check and save money as quickly as possible.
The third module is good debt management. As an important module of financial management, debt management is the premise of financial security. However, most people don’t pay attention to this. For example, some people like to live paycheck to paycheck, which makes it easy for them to have too much money in emergencies. Others get used to living beyond their means and get into the habit of living beyond their means and end up in trouble. In life, eliminating consumer loans, selling assets as quickly as possible when the economy wobbles and buying assets when the market stabilizes are all ways we need to know how to manage debt.
The fourth module is to excavate dormant assets. The so-called sleeping assets, is to point to the property left by ancestors, such as valuable copper and precious stamps, or many years ago friend’s loan, idle real estate and so on. When you take stock of your assets and find these treasures, wake them up and let them contribute to your life.
The fifth module is to develop liquidity skills. In modern society, fewer and fewer people live on a fixed salary, and young slashes are everywhere. Developing sales channels in your spare time, or making money from writing and painting, which you are good at, are all core skills that can be developed outside of work. By focusing on your core competencies, you have the opportunity to increase your share of non-wage income. When you build your skills into a continuous cash cow, you can accelerate your financial accumulation and gain time freedom. It’s also a path to financial freedom.
conclusion
To sum up, financial planning is not a one-time job, it actually runs through our whole life, and we need to make corresponding adjustments to different situations in the process of planning and implementation. By doing the right things at the right time, we can achieve our financial goals.
In the next article, I will explain “1 million deposit in the bank to eat interest do not go to work?!”
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