Personal financial management is an overlooked area of knowledge because this knowledge is not instilled from childhood. The result is problems, behaviors, and incorrect financial management discipline that cause many working people to have a lot of debt and not have enough money to use in retirement.
Some people say that you need to know about money, but just knowing how much money you have is not enough. There are many more things that you need to know and understand about money management.
Most of the problems that we often hear or encounter in the working society are related to finances, such as:
“As soon as my salary comes out, it’s all gone to pay off my credit card debt.”
“I’ve been working for almost ten years and I have no savings.”
“Where will I get the money to invest? Just making ends meet is already hard enough.”
“I got sick just once and the money I had saved for many years was almost gone.”
This is a behavioral problem that arises from a lack of financial knowledge and understanding.
In the company, there is still a need for accountants and financial officers to take care of and be responsible for finances. We ourselves are the same. We must also give importance to our own financial management because this is the starting point of creating good financial behavior and discipline for us in the future.
Start by focusing on personal financial management.
“There is no goal in life that does not involve money. Every goal involves money.”
Why do we need to give importance to personal finance management?
It will allow us to understand our own financial cycle, know how to estimate ourselves, create good behavior and discipline, see the importance of spending sensibly, and be able to plan our own finances alongside other goals in life. Therefore, financial planning must always be planned in conjunction with other plans in our lives.
Because personal finance management will help us understand how to manage the money we earn and be able to manage expenses correctly according to the financial goals we have set.
In terms of personal finance management, it consists of the following 5 aspects:
Income : or income
Here it means money or income that we receive, regardless of the channel, such as a full-time employee will have income or salary from the employer, or if you are a freelancer, the income will come from the employer, etc. It also includes income from other channels, such as annual bonuses, rental income (house rent or property rental), interest from lending, or dividends from investments, etc.
For working people, most of their main income comes from salary alone. There is also a high risk of losing their job or, if they do not manage their spending well, they will likely not have enough money to spend or not have savings to invest or prepare for retirement.
Spending : or expenses
Here, it means various expenses, whether personal or family, such as spending, buying food, supplies, or other things, such as food, travel, house payments, car payments, taxes, etc.
Expenses are both in cash and credit. The latter is especially what causes many working people to spend more than they earn, using future money, which leads to a lot of debt. The result is that they have no savings and have a lot of debt, with huge principal and interest. This means that all the money they earn has to be used to pay off debts. It takes many more years to get by.
Saving : or savings
Here, it means the remaining money or income after deducting all expenses. The simple principle is Income – Expenses = Money left or savings. The principle seems easy, but most people can’t do it because the behavior of creating more expenses is like having to have it, buying first, paying later, which results in no money left or worse, being in the red, which is debt.
Savings are necessary, first of all, to save for emergencies. So how much should we have in reserve?
4-6 months of salary, that’s what they say. For example, if your salary is 30,000 baht, save up to have at least 120,000 baht for emergencies. If that seems too harsh, let’s try another approach.
4-6 months of regular expenses Regular expenses such as house payments, car payments, etc., parents’ or children’s salaries, etc. For example, if your salary is 30,000 baht, you will have 15,000 baht in regular expenses, so you should have at least 60,000 baht in emergency reserves.
Why do you need to reserve 4-6 months in advance?
Because nothing is certain. The job you used to do may no longer be available. Look at the COVID-19 outbreak. Many people have lost their jobs or had their salaries cut. If we don’t have any savings, we will lack liquidity, forcing us to borrow more money.
Most savings that are in the form of emergency funds should not be kept in cash because they can easily run out. Most of them are deposited in the bank in the form of fixed deposits. At least it is safe and gives some interest. However, it should not be stored in stocks or assets with high uncertainty because if one day we really need the money but the stocks fall sharply, it will not be worth selling or we will lose money. Therefore, it should be kept in a place where it can be easily redeemed in an urgent need.
Another thing is that when we have enough savings to a certain level, we can use the remaining savings to invest in other forms.
Investing : or invest
Here it means investment with expected returns, which of course in every investment there is also volatility, such as investing in stocks, mutual funds, real estate, investing in businesses, or others.
“High Risk, High Return”
Because investment has risks, but if you have money left and do not invest, but just keep it, it is even riskier because the money we hold can depreciate. The value of the money decreases significantly over time. For example, 10 years ago, buying special chicken rice cost around 30 baht, but now it has to be 60 baht or more. The alternative is that it is necessary to invest, even though there is a chance of some loss.
These days, there are many investment options for working people, whether it’s in provident funds, tax-deductible mutual funds ( SSF and RMF ), or others. You can read more about this.
Personal Protection : or Protection
In this case, it means insurance. Nothing is certain, especially if we are the main earner and our only source of income is the salary we receive from the company. If one day an unexpected event occurs and our income disappears, what will happen to the remaining family members?
Insurance is another option and a way to plan finances and the future for working people. The types of insurance include life insurance, health insurance, property insurance such as home or car insurance, etc.
Mostly, the insurance principle for life insurance is to look at the debt burden that we have plus what we will be responsible for in the future, such as having a house loan and having expenses for children’s education. We add these two debts together and will be able to determine the insurance capital that we must have, such as debt plus expenses is 1 million baht, we can choose to buy life insurance with an insurance capital of 1 million baht.
For example, the insured amount is 1 million baht, the premium we have to pay is around 4-9 thousand baht per year. The premium price varies according to age and gender. That is, buying insurance at an older age will be much more expensive because the older you are and the more male you are, the higher the risk is that the insurance company will charge a very high annual premium, higher than for women.
Personal financial management is the starting point of financial immunity.
Because money is a big issue, it’s time for us to pay attention to personal financial management. This knowledge doesn’t need to wait for anyone to teach us. We can start learning by ourselves and with our family members.
Plan together with your family members, create life and financial goals together, and stay in the equation of sufficiency, moderation, and less greed. We and our family will find happiness in the way that is enough and good
