Why is Personal Finance Important?

Personal Finance is not something that is discussed a lot.  The reason is that there emotions such as shame and pride.  If you feel you don't have a lot, you feel shame like you are not doing something right, or you cannot control your spending, or you don't make enough money.  If you feel pride, you think that you have done it all on your own, you may look down on others as if they have not saved enough or were not diligent enough.  In my life, I have felt both of those.  Even now sometimes.  The truth is that we are taught or not taught about personal finance.  If we are not taught it, we learn it other ways.  We can learn it from the media, or watching people who look rich and think that we need to look rich as well.  Sometimes what we are taught could be incorrect.  Here are some examples that I believe are incorrect that I was taught (always have a mortgage as it is a tax deduction, college loans are investments in your future, you must build your credit score with a credit card to name a few).

For me, the number one reason is Financial Independence.  At any moment I can be let go from my job.  Sure I may get a severance, but at times when people are getting let go, usually it is a macro economic force that is impacting the entire workforce.  I may have difficulty finding a job, or at least one that paid as well as my other job.  If you have a strong emergency fund to fall back on, you don't have to take something that may not be the right fit.  Not everyone starts out as an adult at what I would call financially independent, but as you work your way to it, you see benefits.  I had to put myself on a path to financial independence, and very rarely do we have a clean start.  If you do, hold on to it and don't be tempted by debt.  You can become financially secure by being a wise spender and spending less than you make; then letting the stock market increase your investments over the very long term. 

Another reason that I think it is important to be financially independent is stress.  When you are concerned about money and paying bills you don't sleep as well, you are nervous, you are thinking about how to make ends meet.  A big reason for divorce in this country is money.  If you don't have debt, you sleep better at night!

Knowing how to prudently spend, invest and plan is the key to personal finance.  There is not one app that can do it for you.  There are apps that can help you but it is only a tool not the brains behind the operation, that is you!  Fortunately for me it is based around simple math.  The other thing that is learned is the psychological side, and the critical thinking to some financial decisions.  It is not how much you earn.  You earn what you earn, your spending should be below it, but there should be room for saving as well.  That does not mean that you should not try to make more money, it just means that right now, the reality is that you bring in x and you should not spend more than y.

These are my reasons, what are yours?  Take a minute and dream about how it would feel in a few years if you had no debts (or at least none except a mortgage).  Would you sleep better?  Would you work better?  Would you have better relationships?

Now think of 20 years from now.  You own your house outright.  You have no debts.  Your 401k is seeing larger gains every year than you put into it.  You can buy a car with cash (of course a sensible car).  You can pay for that 2 week trip to Europe with cash.  You feel confident you can pay for your kids college and still retire early.

It is possible, you just need to start today.

I heard the Chinese Proverb "The best time to plant a tree was 20 years ago.  The second best time is now"