4 min read

·

Mar 4, 2025

“ What is personal finance and why should I learn about it?”

This was the exact question my friend turned into a new client, who had asked me on the first day of our appointment.

I wasn’t surprised at her question especially when statistics states that:

Globally, about 67% of adults lack financial literacy, meaning they do not understand basic financial concepts such as interest rates, inflation, and risk diversification(according to https://gflec.org/initiatives/sp-global-finlit-survey/

My reply was this, instead:

Personal finance means your finances.

As in, Personal means "you" and Finance means "the study of the creation, management, multiplication and protection of money."

Simply, personal finance means studying how to grow, manage and multiply your money.

A good way to understand the processes involved in personal finance is by using the analogy of building a house.

Here's how it can be applied:

The Land represents your Income—it's the foundation upon which the house is built.

The same way, your income is the starting point of your financial life. The size and quality of the land illustrates the amount and stability of your income.

It outlines how you intend to use your land and other resources to build your house. A well-defined blueprint describes how the house is built efficiently and effectively.

The blueprint is synonymous to your financial plan or budget, how it's designed determines how well your money is spent.

These are the resources you accumulate and use to build. The building materials represent your savings and investments. Just as building materials are essential for constructing a house, savings and investments are essential to build your financial future.

Different types of materials can represent different types of savings and investments (cash, stocks, bonds, real estate).

Construction Process:

The construction process transforms raw materials into a house, it also represents your financial management. This is the day-to-day work of budgeting, spending, saving, and investing. Your financial management transforms your income into financial security and assets.

Finished House/Completed Building:

The finished house is the culmination of the building process, it represents your financial goals and the assets you build. Your financial goals are the culmination of your financial efforts. It could be a comfortable retirement, a down payment on a house, your children's education, or financial freedom.

Different types of houses (small apartments, large mansions) can represent different levels of financial success.

Maintenance/Repairs:

Once the house is built, it requires maintenance and repairs. This represents the ongoing management of your finances, including reviewing your budget, rebalancing your investments, and adapting to changing circumstances.

Unexpected Issues (e.g., Leaky Roof):

Just as a house can encounter unexpected issues like a leaky roof, your finances can face unexpected challenges like job loss or medical bills. Having a financial "emergency fund" is like having insurance for your house. It is also a form of protecting your personal finance from further damages.

“Ohhhh, I think I understand what Personal finance means now...but, why should I learn all of these?” My new client asked again.

Well, I think you need to ask yourself this question;

do I want to be wealthy?

I suppose yes.

Financial literacy is the backbone of Financial freedom. Without being properly informed about your personal finance you can't learn ways to be wealthy.

Everyone wants to be wealthy including the poor, but what differentiates another is what they've learned about personal finance.

Also, why do you want to be wealthy?

You might have to take a breather here and write them down, you will need them when we start talking about why you should learn about personal finance.

After writing, how do you intend to achieve them? Remember, the building of a house analogy? Those steps contain the how.

You see, you've just understood why you should learn about Personal finance!

To show you why you want to be wealthy and then direct your path on how to get there.

Conclusion

Personal finance is all about the why and how you can grow, manage and multiply your money so you can live the best life you’ve always wanted!

Now that I've answered your question, what's the one step you're going to take about your personal finance today?

I'm so curious to read what you've got to say in the comments!