What are Personal Loans?On May 14, 2019 by Carol Miller
The word finances seems to refer to complex terms related to economics, the stock market, investors, mathematics and administration. However, finance influences everything and our daily life is no exception, hence the concept of personal finance.
Finance is a broad branch of the economy that refers to the study of transactions and the management of money and goods between different entities such as governments, companies and individuals.
Personal loans, on the other hand, refer to the management and administration of money and assets of an individual or family. That is, the management of all your money : your income, your expenses, material goods, savings funds, investment funds, insurance, loans, etc.
Why is it important to understand personal loans?
Knowing what personal loans are is fundamental to understanding how they work and how we should manage our money. In a simple way, it encourages us to be aware that every decision we make when using our money, whether for an expense or an investment, is a decision that can benefit or harm our quality of life and our future.
Most Mexicans do not have an education or financial planning and we still think it is difficult to understand or we do not need it, so we go through life working 9 hours a day from Monday to Friday and wasting money every fortnight to finish with empty pockets at the end of each month.
That’s what money is for, right? Definitely not. The intelligent use of our financial resources goes far beyond that; wisely manage your money can generate more wealth in the long term than progress in your career to have a better salary.
Therefore, if you do not mind understanding what personal loans are or do not think you need them, you should know that by simply having money in your power and having personal loans; bad or good, but you have them.
How to have good personal loans?
1. The number one rule in personal loans is to make the difference between expenses and income as large as possible, that is, try to reduce your expenses as much as possible and increase your income as much as possible. Try that your expenses are always less than the money you earn, no matter if your income is 5,000 pesos per month or 50,000. The money that you do not use in your expenses has to go directly to your savings, and these will increase month by month.
If you want to know how you can start decreasing your expenses and saving you can start by creating a personal budget where you will plan how much money you will allocate to each aspect of your day to day: transportation, food, health, education, entertainment, etc. From there you can track your expenses and identify those that are unnecessary.
Camibank is the first personal finance platform in Mexico with which you can create a personalized budget easily and quickly, and which automatically tracks your expenses when linking your bank accounts.
2. You need to divide your savings into different funds. It is essential to have a fund for emergencies and another for your retirement; Having these two funds will prevent you from losing your sleep if some day you find yourself in financial difficulties.
After you have formed these savings funds, and depending on your needs and income, you can start building various savings funds for your short, medium and long-term goals. For example, you can have a fund for your child’s college, for a business or for a house.
3. The golden rule in personal loans is to get your money to work for you without you having to work. The money you have saved can be invested to generate returns and at the same time not lose its value month after month due to inflation. To understand this better, you must know two concepts:
- Assets. It is known as an asset to an investment that generates returns. Assets always generate income. Examples: investment funds, the income generated in your bank account, your own company, stocks, or the income you receive from investments in real estate.
- Liabilities It is known as liabilities to the expenses that are inevitable or to the debts or obligations that we have. Examples: food, housing, education, health, taxes, credit payments and debts in general.
In the end, if the returns generated by your assets allow you to cover your liabilities without the need to work, you will achieve financial freedom
Now you know what personal loans are and why they are so important.