Sixth and last part
In this series we have talked about the four pillars of personal finance and why they are considered as such:
1. Be clear about our priorities
2. Take control of our money
3.Invest wisely
4. Protect what we are building
Personal financial planning is simply one part of a larger plan, which is our life plan. It’s important because some of the things we want to accomplish cost money. Personal finances give us the necessary tools to make them a reality.
For me, for example, something that has always been important is achieving financial freedom and I have worked all my life to achieve it. That’s why I also want to help others to achieve it.
What is the Liberty? It is simply the ability to decide. The word capacity has many edges, all of them important. But in this area it simply refers to having the means to be able to decide. Not having to rely on income (this does not necessarily mean stopping work – just that we have a choice). Many people who have achieved financial freedom continue to work because they enjoy doing it and it adds value to their lives.
You have to understand this concept well, because you might think that only the rich can have financial freedom. It is not like this. It simply means having the financial resources to maintain our current standard of living, without having to rely on one job or another.
A few weeks ago I wrote here about the FIRE (Financial Independence, Retire Early) movement. They are people who earn well but learn to spend only on essentials, on what they really need and not on luxuries. That’s why they can save and invest wisely up to 70% of their income. This allows them to achieve their financial freedom in a relatively short period of time: 10 to 15 years. As long as they continue with that same level of spending.
In this world, very few people are born with financial freedom: with resources that their parents or ancestors have built up over the years. All the rest of us have to build it little by little and the only way to do it is through good personal planning, supported by the four pillars of personal finance that we have explained here.
Personal finances are not difficult. It’s simply about being clear about our financial goals and priorities. In other words, knowing where we are and where we want to go. A financial plan is simply charting a route that can take us to our destination. But we also need to protect ourselves in case a big storm comes our way.
It is important to remember that the only way to build wealth is little by little, with perseverance and discipline, over many years. Contribute periodically, every month, towards our financial goals. Invest that money intelligently, in a diversified investment portfolio according to our investment horizon and our risk tolerance, efficient and low cost. Follow the plan no matter what. In life there will be good and bad economic cycles: periods of economic growth, others of recession. Low and high inflation scenarios. The only thing we can control is what we do; continue building with the same perseverance and discipline. The only way to achieve that is to be clear about our priorities, what is important to us and what we really want to achieve.
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