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¿Why do you need to learn about personal finance?

We may have all heard the term "personal finance" at some point in our lives, but very few of us have taken action to learn more about the key issues of this topic.

The advantages of having healthy personal finances are countless, and here are just a few:

Savings for retirement

Savings for retirement is a time bomb in Mexico and Latin America and will explode in a couple of years. In past years, this problem was not visualized in such a stressed way due to different public policies that were developed by past presidents and a population pyramid that favors previous generations. Still, if you are under 40 years old and reading this, you are probably interested in saving for your retirement.

And, according to "El Economista," of the 40,000 people who will be 65 by 2021, only 30% will be able to have a pension. This is due to different factors such as a high rate of informality (about 60% of workers in Mexico work in the informal sector), low employer contributions, loss of the value of money over time, and a high lack of interest from companies, government, and the population to solve this problem.

How would an accurate administration of your finances help you? In this particular case, voluntary contributions or personal savings funds for retirement are the only solutions that we can control. Nobody wants to suffer when they reach an advanced age. In a few words, you will be the only one who can save yourself from an adverse scenario in the future. For that, you have to know perfectly which retirement savings scheme suits your needs, profile risk, and economic capacity.

Emergency fund

An emergency fund is money that a person always has available for any unforeseen event without completely undercapitalize or compromising their assets. Typically, it is recommended that this fund ranges at least between 3 and 6 months of your salary to cover eventualities such as medical emergencies, job layoffs, among others.

It is estimated that more than 60% of Mexicans do not have any type of emergency fund, which may be due to different circumstances and a very complex salary reality throughout the country. Still, it is essential to understand that it is also due to a lack of financial planning in some cases.

How would an accurate administration of your finances help you? Suppose you are aware of your income and expenses month by month and keep favorable control of these. In that case, you will have a much broader understanding of the steps you have to follow to have your emergency fund lastly. You can reduce unnecesay expenses, look for alternatives to generate passive income, etc.

Achieve your personal and professional goals

Moreover, it is vital to emphasize that when you want to achieve a personal or professional goal (buying a car, a house, travel, study abroad, etc.) in the medium or long term, you need precise financial planning and a step by step on how to achieve that goal.

It is much easier to visualize these goals since we have all dreamed of a specific destination, a particular car, or a project that has attracted us all our lives. These goals usually require an investment of time and money that the vast majority of the population in Mexico would need to plan to make a good financial decision.

How would an accurate administration of your finances help you? The goal is not just to use your credit card or carelessness all your other fixed expenses for the month to fulfill that trip to Rome that has been waiting for so long. Proper management of your finances will allow you to dedicate a certain percentage of your monthly income to your goals. As various behavioral economics studies reveal, this is important and extremely necessary to make this type of investment in yourself as a mechanism to stay focused on the rest of your financial goals.

These are just some of the most common examples of why personal finances are so important to an economically successful person, but there are countless reasons why you should take action to improve your financial life. Can you visualize yourself having completed the three points mentioned in this article?

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