Why Is It Important To Understand Personal Finance As A Student?

342 words | 1 minute, 38 seconds

So what is personal finance? simply a term that covers the concepts of:

• Managing your money

• Saving

• Investing

There is more to it, like banking and budgeting. So then, why is it important to learn about personal finance?

So, where do you see yourself in 5–10 years after finishing your degree? Most likely, your vision involves some level of financial security. At the very least, you'd want enough financial flexibility to spend on entertainment without feeling the weight of financial stress.

Understanding concepts about finance is crucial because they pave the path to financial freedom, allowing you to discern between sound and unsound advice while enabling you to make informed financial choices. So then, how should you manage your money?

Managing your money

As a student living on your own, you might wonder how to navigate these aspects effectively. To get started, it's essential to identify and prioritize your financial goals, creating a budget plan to serve as your roadmap. Many professionals recommend the 50-30-20 rule as a simple guideline for budgeting. This rule suggests allocating 50% of your income to mandatory expenses, 30% to creature comforts, and the remaining 20% to savings."

Generally, it's advisable to have an emergency fund set aside to cover living expenses for up to six months. This should be your top financial priority. Why? Because life can be unpredictable. An emergency fund provides a financial safety net, allowing you to weather unexpected setbacks such as medical bills.

Investing is another vital component of personal finance. While it may seem risky, especially when it comes to short-term goals due to the unpredictability of stock markets, it's often more prudent to adopt a long-term perspective. In general, the stock market tends to exhibit a positive long-term trend, consistently outpacing inflation. This means that over an extended period, your investments have the potential to grow and provide a significant return. So, while short-term fluctuations may occur, a long-term investment strategy can help you build wealth over time

LESSON TO BE LEARNED

Understanding and effectively managing your personal finances is the key to achieving financial security and freedom.

BOOK I’M READING

Resources used