Why is personal finance important? The reason is because personal finance plays such an integral part in our every day lives. It matters in marriage, sense of security, and standard of living. Whether we like to admit it or not, money moves the world. It influences our and our family’s day to day life more so than we know.
Master the game of money and you will live a life on your terms. Make money your master and you will live a life on money’s terms. It’s scary how pervasive it seeps onto every day activities. You can’t ever reach financial independence without knowing how to manage your money.
At whichever stage of life you are in, money matters. That doesn’t mean that money is the most important thing in the world but it does mean it is important. It’s quite expensive in order to just exist and live life. Bills like rent, utilities, insurance, and more have to be paid.
I recognized how crucial it was until I experienced it for myself. When I graduated college, I lived on a $25,000 salary, after 401k, HSA, and insurance contributions. It was insanely difficult to go through those times. After the sixth month mark, my motivation drained to no end.
I didn’t realize it until the end of the year, but I was quite miserable.
When I received a $28,500 bonus, $20,000 after tax, I started to experience life again. That’s when I started to realize how powerful personal finance was. Have little money and your happiness can decline. Have an abundance of it and you will start to feel like you have room in your life.
Otherwise, you will be beholden to your company for the rest of your life. That does not sound like a good life, does it?
Why is Personal Finance Important?
When you ask “why is personal finance important?”, there are seven distinct reasons why. One way you can answer the question is to SMASH the social share button to post to your favorite social media! We can better everyone’s personal finance lives, why not start with your friends’? Let’s spread the good word.
So with that, here are the 7 reasons why personal finance is important.
1) Money is the #2 Cause of Divorce
We learned that money is the number two cause of divorce, from this study. Marriage is a stool that depends on at least three legs to support its structure. One is love and attraction. One is respect and communication. The other is money. No matter how much you love your spouse, if you don’t have your basic needs taken care of, a relationship is doomed.
Money can buy shelter, food, water, insurance, and more. If your basic needs aren’t met, you start to lash out and attack the person who’s at arm’s length. Your relationships with your friends and significant other suffers as a result. It’s a stressful activity to have to think about where you will get the money to afford food.
It’s stressful if you don’t know how you are going to pay the mortgage or any other consumer debt you have. As self-interested human beings, we care about our basic needs before taking care of others’ basic needs. Not your kids needs, parent’s needs, or your spouse’s needs. There are problems when your basic needs aren’t met.
Why is personal finance important? Bad personal finance problems ruined marriages in the past, it’s ruining marriages today, and it will continue to do so. With such an impact to your life, why not master it?
2) Gives You Security
When you don’t have excess in your life, you feel like you are living life on the edge. Every day is a struggle where you don’t know where your next food source will come from. It’s stressful and agonizing. In the short term, it can serve as great motivators to work as hard as you possibly can to provide for yourself and your family.
But over the long term, you’ll get sick of the lack of security if your efforts show no results. You’ll get sick of the lack of consistency, peace, and harmony in your life. Chaos is good if it happens once in a while, not when it is the norm. We have a DYING need for consistency. People crave it as if their lives depend on it.
Without the proper personal finance plans, steps, and goals in place, you will lose that sense of security. Discomfort can bring about growth, but too much discomfort will bring about fear. Our heart is not able to take all of the stress that comes with constant discomfort and lack of security.
We crave at least a baseline level of security and safety in our lives, no matter how risk loving we are. The person who managed their finances very well don’t have this problem.
3) No More Bartering Economy
Back in the day, we used to have a bartering economy where chickens were traded for cows. This created a problem where the time lag between growing a chicken to have as a bargaining chip and having a cow was enormous. How did this problem get solved? Enter money.
Money was created to solve the timing differences of wanting and having something between two or more people. We don’t have a bartering economy anymore. Rather, the medium of exchange became standardized that the price of something is usually money.
The better you are at personal finance and money, the more you have to afford anything that your heart desires. Keep in mind that what matters is that you can afford anything, but it does not mean you should buy everything.
Regardless, when you ask why is personal finance important, one of the reasons is that we are no longer in a bartering and trade economy. Money is a standardized medium of exchange.
4) Increase Standard of Living
When I first started working after college, my standard of living was awful. Cockroaches roamed here and there, the bathtub didn’t work properly, and the apartment hallways smelled funny. It wasn’t good feeling.
Believe it or not, it still took away a large portion of my income because I was saving so much into 401k’s and such. When I started to earn more money, I started to increase my standard of living and it feels amazing.
Currently, the landlord quickly takes care of house problems and there are zero aesthetic things around the house that’s bothering me. I am hoping that the standard of living continues to increase as I grow my income more and receive promotions.
Good personal finance creates good standard of living. Standard of living can be defined an infinite number of ways. One definition is by evaluating your level of wealth, material goods, and comfort. How far above the baseline standard of living of having food, water, shelter, and comfort are you at?
Personal finance can elevate you and move your standard of living to heights that you want for yourself. Evaluate your life currently. Do you feel like you want it to improve? Then it’s time to make some changes. Do you feel like you are already at a good place? Then it’s time to continue doing what you’re doing.
Life is malleable to how you want to make it be.
5) Prevents Debt
If you don’t practice good personal finance habits, you can drown in debt. That’s the worst position that you can be in. You are not working and making money for yourself You are working and making money to pay off others. Every dollar that you make, your creditor technically owns it.
The good news is that consumer debt decreased at an annualized rate of 0.4% in January 2021 in response to the coronavirus. Usually, headlines talk about how consumer debt soared to new record highs. The surprise decrease is fantastic news!
People are exhibiting sound and good decisions in their approach to finances and it only took a pandemic to convince them to do so!
While I fully expect that debt balance decrease shift to debt balance increase in the coming years, you, as an individual, don’t want to be beholden to someone else. Not owing anything to anyone else is the best feeling in the entire world.
You want to put yourself in a position where 100% of the money you earn goes to you. Not to anyone else. Debtors, government, or family. Yes, there is a way to structure your earnings so you don’t pay taxes to the government.
I used to have a $5,000 student loan balance. Not anymore. When I made my final payment, the annoying thing that was mentally bothering me went away. It felt amazing to not have to worry about paying somebody else. I only had to worry about paying myself and that felt great.
6) School Doesn’t Teach Personal Finance
Personal finance is more important than ever because it’s not taught in school. The ONLY time I ever heard about personal finance was when I was a Sophomore in college as a 19-year old. While that is still a good age to learn about personal finance, I believe it should be taught when we are in high school. Between 14 – 18 years old.
I have a feeling that school doesn’t teach it because the government does not want people to be out of work. They need all of us to keep working to pump up the economy! Or maybe because they don’t want to be held liable for making “investment recommendations”. Whichever the actual reason is, it’s just not right that personal finance is never taught in school.
We’re not suddenly going to wake up one day and think “what more can I learn about in the world?” and find out about good personal finance habits. Let alone “why is personal finance important?” Besides, we are taught from a young age that money is the root of all evil.
That is the biggest myth we can hear today. I almost didn’t major in business for that reason. I didn’t want to pursue something that everyone was saying was evil. Eventually, I came to my senses. To this day, I have no idea what triggered the decision to change my major to Finance but I am SO thankful that I changed my mind.
The ones who say money is the root of all evil are usually the ones who don’t have a lot of it and are bitter. Don’t listen to them.
7) Money Moves the World
Whether we like it or not, money has a profound and lasting impact in the world. It allows us to purchase goods and services that impact billions of people’s lives. It influences people to provide as much value as they can to others in order to earn more money. We have construction workers building buildings, restaurants offering food, and the like.
Personal finance is essential because money is a universal language. Everyone speaks and understands it. Why not master something that everybody else speaks so you can participate as well?
While there is no need to be insanely wealthy to the point that you can afford a yacht, there is a need to be wealthy so you can afford to comfortably live. Restaurants will turn you away if you don’t have enough money to pay for the meal. Same with grocery stores and more.
For better or worse, people actually give you more respect if they know you have money. Jack Ma famously said in a couple of conferences that when you have money, you can say anything and people will think you’re smart. To an extent, he is correct.
Ask Yourself Why is Personal Finance Important to You
When you start asking the right questions such as “why is personal finance important”? You start to figure out the answers that work for you. Personal finance is personal, so everyone’s situations, goals, wants, and needs are completely different. Now that you know why personal finance is important, now it’s time to find out why it’s important to you.
Is it because you want to pay off debt? You want to pursue financial freedom and quit your job? There are numerous good reasons for you to pursue this path and keep forging forward. Personally, the end goal for me is to start a lifestyle business. I have a couple of lifestyle businesses in mind already to work on after I hopefully retire early.
I do not particularly enjoy having to work for somebody else, I enjoy working because I want to. That is my ultimate end goal of why I am trying to pursue FIRE. To leave time to focus on the things that matter to me the most. It doesn’t seem right to me to work 50%+ more for an employer on a given week only to get paid 100% of my pay. Or to work 75% to be paid 100%.
I prefer a pay structure where the more value/effort I put in, the more I get rewarded. If I give less value/effort, I should be paid less as well.
Find out why you are pursuing the path to financial freedom and personal finance. Is it because you want to dictate your time on your own terms? Whatever it is, you will be hard pressed to find the motivation to save money and invest it without knowing the right reasons.
Make sure to find the right answer that works for you and stick with it over the long term.