Why Finance is Simple (But Not Easy)

Personal finance can often feel like a daunting subject. But here’s a perspective you might not expect: finance is actually simple. Now, before you think I’ve lost the plot, let me clarify what I mean.

When I say finance is simple, I mean that the core principles are straightforward. But simple doesn’t necessarily mean easy.

Think about it like baking a cake (I use this analogy as well, I love cake ?? and did you know, I used to run my own bakery? ?? That's a fun fact you weren't expecting today).

The recipe is simple: flour, sugar, eggs, mix, and bake. But if you’ve ever baked, you know it’s not always easy to get it just right. It takes practice, patience, and attention to detail.

Personal finance is much the same. The basic steps are easy to grasp, but applying them consistently can be a real challenge.

Let’s break it down together.

Step 1: Build an Emergency Fund

Imagine starting to bake without having all your ingredients ready—it’s a recipe for disaster. Similarly, before diving into managing your finances, you need to set up an emergency fund. This fund acts as your financial safety net, covering unexpected expenses like car repairs or sudden job loss.

A good rule of thumb is to save three to six months' worth of living expenses. If your income fluctuates or you’re particularly risk-averse, aim for 12 months. Keep this money in an easy-access, high-interest account so it’s ready when you need it.

Step 2: Pay Off High-Interest Debt

High-interest debt is like a cake that’s burned around the edges and ruined in the middle—it spoils your financial health. This type of debt, which includes credit cards and payday loans, needs to be tackled aggressively. The interest can accumulate quickly, turning what seems like a small problem into a financial nightmare. Unlike mortgages, which often come with manageable interest rates, high-interest debt can feel like a never-ending cycle if not addressed.

Step 3: Save and Invest for Your Future

Saving and investing are the next ingredients in your financial recipe. Saving can start with something simple, like a regular savings account. But for long-term goals like retirement, investing is key. Investing is about putting your money into assets like stocks, bonds, or real estate, expecting them to grow over time.

It’s a bit like choosing the right ingredients and techniques to bake the perfect cake. Stocks may offer higher returns but come with higher risks, while bonds are safer but yield lower returns. The mix you choose should align with your risk tolerance and financial goals.

Step 4: Budgeting and Tracking Expenses

Finally, let’s talk about budgeting—this is your detailed cake recipe. It might seem tedious, but it’s crucial to achieve the financial results you want. Budgeting helps you manage your income and expenses, ensuring you can save and invest effectively.

Start by tracking your income and spending. Categorise your expenses into needs, wants, and savings. This will help you see where you might be overspending and where you can adjust. Tools like budgeting apps or spreadsheets can make this process easier and more manageable.

So, why is finance simple but not easy?

Because while the principles are straightforward, executing them requires discipline, persistence, and a bit of creativity.

Just as perfecting a cake takes practice and a keen eye for detail, mastering your finances involves continual learning and adapting.

The basic principles of finance—building an emergency fund, paying off high-interest debt, saving and investing for the future, and budgeting, are simple.

But applying these principles consistently and effectively is where the challenge lies. Don’t be discouraged if it feels overwhelming at times.

Progress takes time, and every step you take toward better financial management is a step in the right direction.

Remember, managing your finances doesn’t have to be complicated, but it does require commitment and a willingness to learn.

And if you want some support to do this - Join my 4 month Wealth programme - Take a look by clicking here