The First Pillar Is Income.
Generating income is the first and most important pillar in personal finance management. Without this pillar,pillar, the others cannot be strong.
On generating income, there are three main methods that one can use:
1. employment, where you sell your time, skills, and experience to other people and get paid a salary.
2. Self-employment, where a person does things alone.
3. Doing business, where a person uses the resources of others to generate a large income.
On the income pillar, the main foundation is value. You are paid according to the value you provide to others. If you can provide more value, you get paid more.
The second pillar is savings.
Savings is a part of your income that you set aside for specific reasons. There are two types of savings that everyone should keep.
1. Emergency savings: this is for things that are not expected to happen, so that they do not disturb you.
2. Savings for goals: this is for implementing goals that a person has in life, such as construction, purchases of personal property, and certain basic activities.
The main basis of savings is HABIT. Saving does not depend on the income a person has, but on the behaviour he has. If you have the habit of saving, you will save even if your income is small. So you should develop a habit of saving regardless of your income.
The Third Pillar is Consumption.
Spending is where our money goes to complete our lives. This is where most of the income goes. There are three types of use that one should know in order to properly manage their money:
1. consumption, which are needs; these must be completed so that life can go on.
2. Uses that are wishes (wants); these are not necessary, but they make life easier.
3. Uses that are luxuries; these are for entertainment and feeling good.
The main basis for spending is to control it so that it does not exceed income. And more, savings should start before spending. For many, when they receive income, they spend it first, and if it remains, they save it, but we know that the income has never been enough to spend.
The correct rules on income, savings, and spending are: income + savings = consumption. That is, when you bring in income, you should set aside savings first before spending.
The fourth pillar is debts.
Debts have been caused by a person using money that he does not have, so he has to pay it with additional expenses. There are two types of debts:
1. Bad debt, where you pay at a high cost when it does not increase your income.
2. Good debts, where you pay at a cost, but they have brought you more profit than what you pay.
The main principle in debt is to get out of bad debt and stay in good debt. There are the right strategies to help you with that.
The Fifth Pillar is Versions.
Although you are struggling with personal finances, the benefit of your money is not only for you but for other people. You are responsible for giving your money to benefit other people. There are three ways to have your funds available:
1. Sacrifice: these are religious offerings; according to a person's faith, there are various offerings to give, for example, the tithe.
2aid to the needy, here a person makes a contribution to those in need.
3. Taxes: here you contribute to the development of the country through the payment of various taxes.
The main principle of giving is to send part of your money to make the lives of others better.
The Sixth Pillar Is Investment.
Investment is making money work for you and bring you profit without you being directly involved. This is an important pillar for a person towards independence, where he can generate income without having to exist directly. There are many types of investment, but three types are basic for a person to do:
1. investment in the capital markets. Here it involves mutual funds, bonds, and the stock market. It's a simple investment that everyone can and should make.
2. Investment in precious stones. These are things whose value increases over time, such as minerals, special coins, paintings, etc. It is a place to keep money so that it does not lose value.
3. Investment in land and property. Here the land and assets resulting from land development add value and can generate income.
The main basis of investment is to start early and do little by little steadily without stopping.
The Seventh Pillar is Protection.
You can fight hard to build yourself up financially, and then an event happens that destroys everything you built. It is important to have protection that will protect you financially so that when something happens, it does not bring you down. For financial protection, insurance is required. There are three types of insurance that a person should have to protect themselves from various disasters:
1. health insurance, which will protect you from large health costs that can shake you up.
2. Property insurance, which will protect you from the loss of your property when various disasters occur.
3. life insurance, which will protect your income and support your dependents in the event of your incapacity or death.
The main basis of protection is to ensure that if any disaster occurs, it does not fall completely.
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