Basic Guide to Personal Finance | Cash Flow, Assets, Liabilities

The Beginner's Guide to Personal Finance for investing

One of the main reasons people endless is struggling money is a simple lack of financial knowledge, but don’t beat yourself up; it’s not our fault. you can not learn this difficult stuff at school, and your parents probably don’t know it. But here is either good news for you that is you can quite quickly learn—some of the basics which we’ll discuss in this article. What we’re going to show you is the basic foundation about finance that can build and improve your financial education.

Cash Flow

Some of this might seem quite obvious, but that’s not necessarily a bad thing. The first time we’re going to cover is cash flow. You need to understand cash flow, and it’s probably the easiest to work out all you do is you add up all the money you receive in a monthly income and subtract all the money. You spend expenditure, and whatever is left is your cash flow quite simply understanding your cash flow is essential to taking control of your finances. If your cash flows negative, then you need to take immediate action.

You’ve got two simple options to increase your income or reduce your expenditure in most cases. You can usually get faster results by reducing expenditure, but if you want long-term financial security. You need to also work on increasing your income in order to be control of your finances and not the other way around. It’s essential to track and monitor all of your income and expenditure and ideally greater budget when you understand what your financial position is each month you can start to change it. There are lots of ways you can track your finances, but you can’t be in a well-designed spreadsheet if you don’t want to create your own. Here we’re going to introduce assets and liabilities, you probably know what these are, but you might not for about.

Liabilities

How they apply to your wealth Wiktionary describes an asset as something of value and the liability as an obligation debt or responsibility over to someone. If you want to be financially successful, you need to understand how assets and liabilities play a powerful part in your wealth management. Let’s start with liabilities. Liability is essentially something that costs money and or depreciates in value they are very bad for your financial help, but we buy them all day long we dream about them we get envious of other people’s, and we rarely stop to think about how they’re affecting our long-term wealth so what counts as a liability but simply everything that isn’t an asset is a liability this includes your car your credit card bonds any house standing loans a mortgage a 15-2 telly your new smartphone that Hardy you booked your gym membership all your furniture your clothes the list is endless all of these things take money out of your pocket, and they don’t put it back now I’m not suggesting you treat this list as the enemy and suspend all your shopping trips but before you buy something you need to be aware how it fits into your financial strategy the reason so many people get fed up with not having enough money as they further pot this simple concept into practice assets.

Assets And Its Types

There are really two types of assets there are assets that are intrinsically worth something and importantly will continue to be worth something in future ideally your assets while increasing value over time your car doesn’t count as an asset because it depreciates over time so mom you can sell it you will never get back the original money you invested into it assets of this type are long-term investments and could include savings pensions property stocks and shares a business or franchise patents or intellectual property art antiques jewelry etc. the other type of asset is much more exciting because it regularly puts money back in your pocket and there’s usually a crossover between the two types of asset interest on savings receiving pension payments rent from a prophecy dividends from shares royalty payments these are all good examples another term for this type of additional income is passive income great thing about passive income is the big nose into your bank of regardless of how much work you do or how much time you surprise.

If you want to be financially free, which means no longer having to earn a salary from a job then it’s essential you build your passive income stream passive income is essential for long-term financial success and will be covered in greater depth in another video very simple rules our wealth is to control spending on liabilities and gradually increase your assets and passive income over time the compounding effect of increasing your monthly income and in turn, investing in more assets leads to an exponential increase in your potential wealth this might seem like a long slow process and accompany but steady, consistent growth over a long time is more powerful and guaranteed than any get-rich-quick scheme or any lottery ticket what we’ve covered in this content is just the merest tiny introduction to building your long term.