What is Personal Finance and Why is it Important for Teenagers to Keep a Track of it.

Personal Finance is a topic that never ever comes up in conversations amongst teenagers. This is such a massive problem that hasn’t been addressed properly till date, leaving millions of students in debts when they graduate out of college. Not being able to manage your own money is a big disadvantage in the real world, and is a position you certainly don’t want to be in!

Decoding ‘Personal Finance’

‘Personal’ refers to an individual character, whilst ‘Finance’ refers to the management of money. This helps us understand that ‘Personal Finance’ refers to the management of one’s money, saving and investing.

3 Important Aspects of Personal Finance

Personal Finance ranges over the 3 important aspects : 1. Managing money : Managing money refers to the planning of what one is going to do with their own money to get the most efficient use out of it. This includes budgeting, setting personal finance goals and more.

2. Saving : Saving in terms of money basically means putting a certain amount of money aside for future use. Savings, therefore, represents a net surplus of funds for an individual or household after all expenses and obligations have been paid.

3. Investing : Investing is a way of potentially increasing the money you have. There are various ways you can invest your money, from stocks and shares to cryptocurrency to real estate. The list goes and that is the best part, you can diversify your investments to reduce the risk of losing money.

Importance of Managing Personal Finance as a Teenager

Why should one start managing their personal finance as a teenager when they aren’t even legally allowed to trade in the stock market? The benefits of starting early are breathtaking, as Albert Einstein quoted “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it.”

To help you understand this topic even further, take a look at this example : If you invest a sum of money at 10 per cent for five years, you will multiply your wealth by 1.6 times. If you invest your capital at that rate for 10 times as long (50 years), you will not multiply your wealth by 16 times, rather, you will multiply it by more than 117 times.

A person’s teenage years are the best years to start learning about personal finance since it acts as a foundation for the person’s future, and the person has their biggest asset still available in abundance, which is time. Since most teenagers don’t understand the importance of financial knowledge, learning about it at this point of time would give you an advantage in the long run when it comes to money and managing it.

Teenagers usually have a very limited amount of money; to make the most optimal use of it, one needs to understand where their money is going. They need to plan and decide how much money they are going to spend on which expense. This is known as budgeting and it is a very important part of managing personal finances. A lot of experts advise on learning budgeting before anything else.

The earlier you identify the benefits of compounding, investing and managing your money, the better it is. It’s best to start learning as a teenager so by the time you have to manage your money in the real world you already know what you should be doing with it. And the power of compounding will always benefit you.

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