How To Understand Personal Finance (Here are 6 ways)

Personal finance can be intimidating at first. But if you are willing enough to give it some time, you will see this subject is really easy to understand. I hope I won’t make it sound too simple, but personal finance, in essence, is utterly all about the right practice of managing your money. In this article, we will talk about the six ways that can help you understand personal finance better. Be sure to read on if you want to improve your knowledge about money management.

A kid taking an online class.
My son is taking his online class.

6 Ways To Understand Personal Finance

1. Work on your financial vocabulary.

One, if not the best, way to understand personal finance is to learn its jargon. Words are the building blocks of learning. The more financial terms you learn, the better you understand how money management works. Every word is like a piece of the puzzle that shows you the whole picture when put together. Below is a list of common terms you will encounter when studying personal finance: (simplified in my own words)

  • Budget — Basically an allotted limit of how much money you can spend.
  • Savings / Emergency fund — The portion of your income you keep for emergency and/or investment purposes.
  • Insurance — A guarantee of protection, safety, or compensation against loss and mishap.
  • Debt — Money you owe to a person or an organization.
  • Credit — The ability to acquire goods or services before actually paying for them.
  • Assets — Anything that generates – or can possibly generate – value now or in the future. (e.g. stocks, real estate, jewelry, etc.)
  • Liabilities — It’s essentially the opposite of assets. It is anything that depreciates or reduces value. (e.g. household bills, car maintenance, penalty fees)
  • Investing — The practice of acquiring assets. It’s making your money earn more money.
  • Inflation — The general idea about the continuous increase in the prices of goods and services.
  • Interests — The amount you earn for lending your money, or the fee you pay when borrowing.

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2. Sharpen your math skills

Almost equally important when understanding personal finance is your proficiency in math. Don’t worry, you generally do not need complex skills in math to be good at managing your finances. But being fundamentally sound is essential. You must be a master of basic mathematics such as addition, subtraction, multiplication, division, and percentages. Here are a few necessary financial equations you must know:

  • Rule of 72 [Number of years = 72 / annual interest rate]
    Used to estimate the number of years and the annual interest rate to double your invested or borrowed money.

    This equation is especially helpful when dealing with credit card debts. It puts things in perspective when you realize credit card companies, more or less, charge you 36% annually for late payments. At this rate, your overall debts can double in two years!
  • Savings [Savings = Income – expenses]

    Determines how much money you saved. But in my experience, the reverse is more effective: Expenses = Income – savings
  • Simple interest [Amount = Principal(1 + (Interest rate x time))]

    Helps you see the principal amount with interest.
  • Tax [Varies.]

    Computing for taxes will always be part of personal finance. Be sure to familiarize yourself with how taxes are computed based on your occupation, marital status, and area.
  • Retirement savings goal [Amount = Desired yearly retirement income x 30]

    This helps you get a snapshot of how much you need to save up for your retirement. Please note retirement planning has more complex equations. The formula above is just a basic computation of the total amount you prefer to live off 30 years after retirement.

The good news is, we do not necessarily need to memorize these equations nowadays. There are many free online calculators and downloadable spreadsheets available on the web that we can use. The objective, however, is to grasp the principles behind these formulas.

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3. Practice personal finance in your daily life

There is no shortcut to understanding personal finance. If you really want to get better at money management, you have to practice it. Do not delegate it. You must do it yourself regularly. I’m not saying you should do it all at once. Just start with the basics and little by little get into the areas of finance that apply to your life. Below is a list of suggestions you can start doing today:

  • Track your income and expenses.
  • Set a financial goal.
  • Create a food budget.
  • Start saving 20% of your income.
  • Put your money in a high-interest savings account or time deposit.

4. Immerse yourself in the topic

I began learning about personal finance in 2016. Six years later, I am still learning new things. My wife and I got financially broke 6-months after we got married. It is a phase in our lives we hope we will never experience again. I get it, financial management can be boring. But what happened to us perhaps is the reason why I continuously immerse myself in this topic.

What about you? What is your main motivation to understand personal finance? I don’t think anyone will just magically become passionate about this subject. Anyhow, if you plan to immerse yourself in financial management, here are the resources I recommend:

Financial books

Online classes

Podcasts

  • Ramsey Everyday Millionaires
  • We Study Billionaires – The Investor’s Podcast
  • The Minimalists

See also

5. Talk about money with people you trust

I am aware money is an awkward topic for some people. But for me and my wife, we talk about it all the time. Talking about money with people you trust helps you learn about it from another person’s perspective. More than that, it also provides you with an accountability partner – who can nudge you in the right direction when you are being led to the wrong financial approach. Below is a list of topics you can talk about with your companion:

  • What area of personal finance do you find most difficult to do?
  • Are there any bad money habits you need to break?
  • If money is not an issue, what are you doing right now?
  • Case studies: what would you do if you were in (someone’s) financial situation?
  • What do you consider a financial success?
  • How much is enough?

6. Teach others about personal finance

This final point will validate your understanding of personal finance. You know you have already understood financial management when you are finally able to teach this subject to others. I’ve been invited to teach about personal finance and investing a few times already, even though I admit I’m not quite ready to talk about it yet. But still, I took it willingly because I know I am among those who are going to benefit from it in the end. Here are a few ideas for where you can teach personal finance:

  • Write a blog.
  • Create a YouTube channel.
  • Organize a small group.
  • Do a one-on-one consultation for free.
  • Record a podcast series.
  • Make an online course.

Closing thoughts

There are a variety of ways to understand personal finance. But perhaps the most important part of learning financial management is your ability to stick to it for the long haul. Studying about money can eventually get boring and repetitive. The challenge is how to be able to keep yourself engaged in the subject.

See also

Sources

Follow the Journey

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Why Is Online Business Important?

Online businesses are here to stay. In fact, e-commerce alone has already become a trillion-dollar industry. It is actually projected to reach $5 trillion in sales worldwide by the end of the year. E-shopping, e-learning, e-banking, and other e-activities have already become a part of our daily lives.

Online businesses are important because they have transformed the way people live and make a living. Families now have more time together, people are making money from their passions, and businesses are reaching customers globally. Online businesses have also been a key in stabilizing the economy during the pandemic.

E-commerce is a topic close to my heart. It was among those that helped me get back on track when I got broke in 2016. Story here. I am now a full-time Internet entrepreneur who works at home with my family. If you want to know how the internet can help the way you do business and live your life, read on. In this article, I will share the importance of online presence for your company and the significance of online business in today’s world.

two kids sleeping
Both of my kids are actually having a fever as I write this article. Thanks to my online businesses, I can work and take care of them at the same time.

Importance of online presence for businesses

We can’t deny the impact the internet has had on our world. But perhaps the most significant is in the way we do business. Whether you are just starting or already among the top in the world, putting your business online will benefit your company greatly. Here is a list of reasons why an online presence is important to your business:

  • Social proofing. People nowadays have very cautious shopping habits. They tend to trust the advice of friends and family over businesses. The online version of this is looking at the positive reviews on the company’s e-commerce site, or the number of followers on the brand’s social media accounts. Being online allows you to exude trust to your potential customers.
  • Data acquisition. Being online allows you to learn deeper about your customers. Through web analytics like Google Analytics, you can more or less determine how they behave on your website. You can see what they are viewing, where they are coming from, what devices they are using, and much more. These data are useful, especially when doing your marketing plan.
  • Getting feedback. Knowing what your customers want is one of the vital information your business needs. With the availability of e-forms, it is now easier than ever to ask for your clients’ comments and suggestions over the Internet. Asking for feedback is a good habit for any company to practice. It will give them insights into what they are doing well, and what they need to improve on.
  • Cross-border marketing. With your business being present online, you will no longer just market your products locally. You can also target potential customers around the globe! The Internet can broaden your audience more than you can imagine. My laptop store has only one location: at home. Yet, because of my online presence, I have served customers all over the Philippines.
  • Makes your products searchable. Believe it or not, many people aren’t even aware of your business. Let’s say you are a shoe company. Unless you are Nike, Adidas, or Jordan, it is rare for people to even search for your brand online. But people do Google what shoes to wear with barong? or shoe store near me? With basic knowledge of SEO (search engine optimization), you will be able to bypass popular brands and jump in front of the customers searching for these queries. Being online gives your business a fighting chance against established companies.

Importance of online business in today’s world

E-commerce has forever changed the way we live our lives today. There were pros and cons, of course. But in this post we will focus more on the good side:

  • Family can have more time together. I can personally vouch for this because spending time with my family is something I enjoy every day. Thanks to my online businesses, I can be with them 24/7. Both of my kids are actually having a fever as I write this article. It is so reassuring that I am able to work and take care of them at the same time.
  • There are a multitude of ways to monetize your passion. There has been debate whether which is the better approach: do what you love? Or love what you do? I personally tend to lean more on the latter. But because of the Internet, the line between these two ideas has become vaguer. Today you can monetize your passions in countless ways. You can start a blog, a YouTube channel, a podcast, an e-commerce site, and much more relating to your hobby. And to note, these online businesses have the potential to grow to something significant.

    Just to share, I am currently enrolled at Income School. I love to write, and I am exploring how to support this passion through blogging. Income School is an online school for creating an online business through blogging and making YouTube videos.
  • It paves the way for many new possibilities. Online businesses have already evolved and are continuously evolving. Before, when we think of online businesses, we only think about buying and selling. Today, an online business may mean that we are hosting our vacant spaces, renting out our cars, playing games to earn real money, mining digital currencies, teaching e-courses, or selling information products.
  • It can save many lives during a pandemic. Global e-commerce jumps to $26.7 trillion during the pandemic. No one can deny how online businesses have become the most valuable asset at the height of Covid-19. Many of us were able to afford to be locked at home and reduce the risk of exposure because of our access to online services like Zoom, Netflix, and various delivery services.
  • It lowers the risk of starting a business. Online businesses can help aspiring entrepreneurs start their own ventures at a minimal cost. In fact, with the right approach and set of tools, they can even set up one without shelling out any money. That is actually how I started my online business career. I was broke and have navigated my way using free services including Facebook Marketplace, eBay, and Carousell. You can follow this link to read more of the strategies I used to make money online: How Much Do Stay At Home Dads Make?

Closing thoughts

Online business has become one of the vital assets in today’s world. It has already impacted many lives since it started. In turn, there is a growing number of people whose businesses and lifestyle depend on the Internet. This can be a good thing, but it also carries its own risks. Perhaps the ideal approach is to utilize the web, but never forget how to live without it.

  • Income school — They taught me how to create an online business through blogging.
  • SpreadSimple — The platform I used to build my online store.
  • Bluehost — The web host I used to start my blogging business.
  • Icedrive — The cloud storage I use to back up my files.
  • Fiverr — Where I hire freelancers to help me with my businesses.

See also

Sources

Follow the Journey

This journal is my way of making sense of the lessons from the journey. Get the next full entry delivered straight to your inbox.

Is Online Business Safe? (Not as safe as you think)

I’m sorry to break it to you, but no business is 100% safe. Even online. But with that said, an online business is still something I wish every father like us could have. It’s a great way to support our family while being physically present in their lives. I don’t know about you, but it is a kind of risk I am willing to take for my family.

Online businesses are considered safer compared to traditional businesses for their low start-up and operating costs. With the right set of tools, the Internet can even help you start a business with no money. Nonetheless, online businesses also come with their own risks and negative effects that you have to manage.

It has been over five years since my wife and I took the leap. Our businesses are now fully online and can be operated anywhere we want. It is something we thank God for each day. The roads, of course, were not without danger. If you want to learn about the risks and the negative effects of an online business, read on. In this article, I will share insights about the threats you have to watch out for and how to practically manage them.

kid going down the fire pole.
Playing with my kids at Kinder City. My eldest likes to be a fireman.

What are the risks of online businesses?

  • Following the wrong people. There is no formal education dedicated to online entrepreneurship. Building an online business is risky because we have to do it on our own. One of the quickest (and smartest) ways to set up a business over the Internet is to follow people who have already done it. They are usually called “gurus” or “influencers” who will offer you their courses, books, and tools that will help you build a successful online business. The risk, of course, is following someone who is a fraud.

    If you are interested in following someone legit, I can vouch for the people at Income School. They teach how to build a business by blogging and creating YouTube videos.
  • Your business is affected by other businesses. Amongst the greatest risks online businesses have is their dependency on other businesses. We do not technically own the success of our company one hundred percent. They will always rely on the tools and services we subscribed to.

    It’s unlikely to happen, but our businesses will definitely suffer if Google, Amazon, or Facebook shut down. The same applies with the companies where we host our domains, e-commerce, blogs, payment gateways, and other essential aspects of our website. If you want some suggestions on the reliable services I have subscribed to thus far, you can check out my recommended tools.
  • Investing in the wrong niche. A niche is a term used to denote a special segment of the population, product, or service. It’s like being a specialty shop, rather than a general store. It’s selling sneakers to sneakerheads, instead of just any shoes to anyone.

    Choosing the right niche is crucial in the online business world. It is literally life and death for your business. Broad niches tend to be overly competitive while narrow niches can be too restricting. The challenge is to strike the right balance. But perhaps the most crucial thing about niches is that they should be something you are passionate about. It’s difficult to work with niches where you do not feel connected.
  • Getting your business copied (or stolen). One of the huge benefits of an online business is it is fast and easy to start. For the experienced, they can do it in one to three days. For beginners, maybe a week. Two weeks tops. Unfortunately, this pro can also be a con. Because online businesses are fast and easy to start, they are also fast and easy to be copied by others. It’s even worse for bloggers and other content creators. There were reports about their works being actually stolen. Putting a business online will expose your intellectual properties at risk.
One of the risks of online business is it is easy to be copied. Photo credit to Logisticsbid.
  • Getting your business hacked. There are professional hackers out there. And they have a bunch of ways to make money from our websites:

    — Steal your and your customer’s credit card information.
    — Steal your and your customer’s data then sell it to advertisers.
    — Will ask for ransom for the accounts they have gained control of.
    — Will use our accounts to solicit money.
  • Bad or false reviews can be detrimental to your business. Positive customer reviews build trust and encourage other shoppers to buy from our store. It is among the most powerful marketing tools we have as online sellers. On the other hand, a negative or a false review can push people away and may be destructive to our business. The problem with reviews is we do not have control over them. People will say what they want to say, and readers won’t have the time to verify whether the review is true or not.
  • Unstable income. Just like any other business, an online business’ income is not guaranteed. You may earn big this month, and nothing the next. The Internet is constantly changing, and those changes may affect the way your business makes money. A change in Google or Facebook’s algorithm may diminish your traffic. A revision on your partners’ fees or percentage can affect your profit.

What are the negative effects of online business?

Besides the financial risks of an online business, it is also worth mentioning its negative effects on our well-being.

  • Loneliness. Running an online business will require you to spend most of your time behind a computer. There will be less face-to-face interaction since the usual way to get in touch with other human beings is via email, chats, or video calls. If you consider yourself an extrovert, you might find it challenging to operate an online business. Loneliness is something you must deal with as an internet entrepreneur.
  • Unrealistic expectations. It is easy to get frustrated by the slow progress when working on the Internet. The problem lies in our unrealistic expectations about what online businesses can do. We overhyped it with the notion that it would make us wealthy in a year or less.

    While there are real stories of overnight success, the average duration for an online business to become profitable is at least 24 months. Online businesses are real business that requires time and dedication to be successful.
  • Being viewed as a scam or second-rate. Not sure if this is only exclusive to where I live in. But there seems to be a prejudice against being an internet entrepreneur. Many see online businesses as a scam or second-rate kinds of businesses. That those who engage in them are either lazy or not qualified enough to create real businesses or get decent jobs.
  • Being distracted or overwhelmed with shiny objects. The internet is a massive space. There are virtually limitless things you can find to help improve your online business. As an internet entrepreneur, you will be constantly bombarded with shiny objects that can pull your attention away from what really matters.

    I was guilty of this. I bought a lot of tools at AppSumo like A.I. writers, SEO-related software, social media schedulers, and more — thinking they are “investments” since they will make my business profitable. Later I found out I do not need 90% of what I have bought.
  • Screen fatigue. Online entrepreneurs are susceptible to screen or eye fatigue. It is often the result of extended exposure to blue light, the glare from our electronic devices, and intense concentration. You know you are experiencing screen fatigue when you have the following:

    — Achy, tired, itchy, burning, dry, or watery eyes
    — Blurred vision
    — Difficulty concentrating
    — Trouble to keep your eyes open
    — Heightened light sensitivity
    — Headaches, especially a dull ache around your eyes
  • Boundary issues. Being able to work anytime anywhere is a great privilege. But as they have said, “great power comes with great responsibility.” Having this kind of power requires self-discipline, or else it will lead you to burnout.

    I personally struggled with this as I tend to work until late at night, and in places where I should just be enjoying my time with family. Even if you can work anytime anywhere, it is best if you can still put up a boundary between work and family life. This is the only way to really enjoy the perk of having an online business.
I always thank God for the opportunity to be able to spend time with my kids. Online businesses have their own risks, but the rewards greatly supersede them.

How do online businesses manage risks?

  • Be involved. I see many internet entrepreneurs who simply hire freelancers to take care of their online businesses. This is smart at some point, but relying too much on people will put your business at a huge risk. No one really cares about your business more than you do.
  • Learn continuously. The business environment over the internet is always changing. What we learned today may already become obsolete next year. Being complacent with our knowledge will put our online business in a disadvantageous position.
  • Back up your files regularly. Anything can happen on the Internet. From cyber-attacks to breaking our own website. Whatever the case, it is good practice to back up our files regularly.
  • Do it slowly. Direction is more important than speed. This is especially true with starting an online business. You may put up an e-commerce site or blog in three days, but in six months you need to start over again because you found out that you are in a highly competitive niche. Doing things slowly will allow you to prune out the possible threats to your business.
  • Work only with reputable companies. There’s a myriad of ways to build your online business on cheaper alternatives. But if you are not sure what you are doing, my recommendation is to always go for reputable ones. It is better to pay more for products and services that will help your business grow and succeed long-term. I have listed the tools I personally use below.
  • Diversify. Diversification is an effective strategy to moderate risks. Be sure to have at least a couple of projects that can support one another. Aside from this blog, I also sell laptops on an e-commerce site, and host properties via Airbnb. Furthermore, my wife also manages her own online jewelry business.
  • Have a secret sauce. Having a “secret sauce” will help you avert copycats and plagiarists. It is an ingredient unique only to you. I am not sure what this means for you, but an example of a secret sauce is stories. My articles are usually seasoned with personal stories which makes it hard for others to copy or steal my content.

Summary

Online businesses are not as safe as we think, but they are generally easy to manage when coupled with the right mindset and approach. It can expose you to certain financial and health risks, yet they are not as grave compared to traditional businesses. Having the discipline to learn continuously, being involved, and setting up a healthy boundary between work and family life will enable us to truly enjoy online entrepreneurship.

  • Income school — They taught me how to create an online business through blogging.
  • SpreadSimple — The platform I used to build my online store.
  • Bluehost — The web host I used to start my blogging business.
  • Icedrive — The cloud storage I use to back up my files.
  • Fiverr — Where I hire freelancers to help me with my businesses.

See also

Sources

Follow the Journey

This journal is my way of making sense of the lessons from the journey. Get the next full entry delivered straight to your inbox.