Why Learning Finance is Important?
It does not matter what career you have or you’re studying, or the place where you work, it is important to learn finance as a specialty, the same career or conferences and seminars about the subject. In economy finance is everything related to cash money flow between individuals, enterprises or the state.
What you learn about finance is a privilege because you will learn how the money flows in reality, you will understand where the money goes, how to handle the money and you also learn about stocks, investments, real estate, etc. This way you can have a rough idea of what happens to the money, even if we think that we have a good salary some of us work from 3-5 months only to pay taxes for the government, in other words: everything that you’ve working very hard for gives you in return about only 60% from the full amount that you’re supposed to get.
The average person lives their life by the day, if they miss one salary check their finances would go down to the floor because the money that we are receiving every two weeks goes directly to pay our passive outcomes like rent, mortgage, car, credit cards, etc.
The cash flow pattern is recognized as your income and outcome and assets and liabilities. Income and outcome is pretty self-explanatory income is the sources from where you earn money and outcome are the sources where you spend money (Monthly expenses like phone, gas, food, rent, etc.)
Some people would think that assets and liabilities are hard to understand but it is very simple when you a little bit about finance.
Basically an asset puts money on your pocket. (Stocks, shares, real state, etc.)
A liability takes money out of your pocket. (Mortgage, credit cards, loans, etc.)
There is a simple analogy if you want to be rich spend your life buying assets, if you want to be halfway between poor and rich then spend your life buying liabilities (Remember? Keep changing house, car, loans and credit cards every year, you are just buying liabilities all over the place and making your income to be miserable compared to your outcomes).
The importance of being financially literate goes in controlling your assets effectively so they can be bigger than your liabilities and that way your financial balance ends positive, the whole purpose is to understand that if you control your assets, even if you lose your job or your main source of income you will still be able to pay off your outcomes with your assets and still have money to survive. One thing to understand is that your assets do not represent your main source of income until you feel comfortable with the income generated from your assets alone.
I will give you my point of view of a rich and poor person, so you can comprehend the importance to be financially literate at a young age so you can manage your life with positive numbers, most importantly constant positive numbers.
Remember that this is only my point of view about finance.
Rich person: apart from your salary or your main income stream, you can still pay off your monthly responsibilities just by your assets, which as I mention before they do not represent your salary or income stream, and with your assets you can control your life even if you lose your job or any other example.
Poor person: is the one that has their salary already defined to pay off debts, mortgage, loans, credit cards and other unnecessary expenses at the moment they receive the paycheck every two weeks.
In a nutshell my concept of a rich person is the one that enjoy financial freedom because they don’t have any necessity to use the main income to pay anything so they’re not adding another thing to worry about in our daily basis. The poor person converts FULL income into outcome as soon as it hits their pockets.
Just the fact of understand finance and how the money works will make yourself capable of controlling your assets for you to make the money work for you instead of YOU working for the money.
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