How Finance works.
Hi, do you want to know what finance is or how personal finance works, well in this article I will show you how to work and manage your personal finance So stay tuned and keep reading?
What is finance?
finance is defined as the process of managing money. and it includes activities like investing, borrowing, lending, budgeting, saving, and forecasting.
Finance is about managing money and all things related to money, like credit banking and investment.
Types of Finance.
Personal finance is defined as managing and securing your money as well as saving and investing. It encompasses budgeting, banking, insurance, mortgages, investments, retirement planning, and tax and estate planning.
corporate finance that’s how companies make decisions about raising and investing money like how much equity or debt to use and which investments to make and when.
equity means that you own part of company ownership is represented by shares of stock.
public or government finance.
Public finance is the management of a country’s revenue, economy, expenditures, and debt through various government and semi-government institutions.
How finance works.
So we’re going to talk about finance the three major things on how finance work
1. it’s a due process, in the due process I mean it takes time, you could save money now to use tomorrow.
Planning your finance correctly will protect you in case you run into troubles like falling sick, having an accident, or losing your job.
2. finance gets money to people who have business ideas but don’t have enough money to realize them.
So today we are going to be talking about how finance works on personal finance.
there are three fundamental principles you have to follow
1. Adopting sound personal habits and discipline.
this includes things like saving regularly, not borrowing what you can’t repay, and sticking to your monthly budget.
start setting money aside as soon as humanly possible if you can afford only a small share of your income every month that’s what you put aside you’ll earn interest and when you reinvest that your small savings will grow into large savings over time this is called compounding and it works like magic in the long run.
2. planning ahead
Planning ahead like starting early to plan for retirement making compounding work for you and getting proper health and property insurance.
here’s the thing if you don’t save for your retirement now you’ll have to work until age 100, but relax you’ve got two great things going for you compounding is one reinvest interest and dividends you earn and let them accumulate in your account so they can earn income.
your money won’t make money the second thing working for you is stocks or equities they go up and down but in the long run, they earn good returns that beat inflation.
stocks should account for the largest part of your portfolio but you should always diversify
3. You have to keep your portfolio diversified.
You have to keep your portfolio diversified with a balance of cash bonds and equities and if possible some real assets like a home or some commodities you should review your portfolio regularly and adjusted to make sure it stays balanced and you should use dollar-cost averaging to smooth average purchase prices dollar-cost averaging.
you can buy a thousand dollars worth every month for a year this makes sure you buy more units when the price is low and fewer units when the price is high it also forces you to save regularly that’s dollar-cost averaging.
index funds track the average evolution of a stock market they offer diversification, liquidity, and low cost.
ETFs or exchange-traded funds are a particularly popular type of index fund they are traded on stock exchanges.
How finance work the HBR guide
So to work on your finance you have to do these three things
- be disciplined
- Plan ahead
and that’s good because it will go a long way toward helping you achieve material comfort and financial security.
let’s see what you’ve learned which of the following is a good idea answer yes or no in the comments section.
1. start saving for retirement
2. save a regular percent of your income regardless of how much you earn.
3. Should you put all your money into stocks because they offer the highest returns or you should diversify.