We talked about the bigger picture or work earlier which is our effort spent on anything. Anything we put our effort into can be considered work and must have value or reward in some way. Now, we will talk about the personal finance equation.
There are three main elements to this equation. Those elements are time, effort, and money. We always trade between those three elements. We can trade our time for money. We can trade our money to save some time or effort. Let’s give a few examples to clear it up.
- Using public transportation is cheaper than personal transportation. I can take a taxi to reach my destination faster and with less effort but it is expensive than the bus.
- We can spend time learning something to have a special skill to earn money faster and easier with less effort.
- We can spend money to hire a housekeeper or a babysitter to have some free time to do something else. That’s another way to trade money for time or effort.
There is a famous personal finance equation we are not talking about. But let’s give a hint about it
The personal finance equation is a simplified formula that helps individuals understand the relationship between income, expenses, savings, and debt. It is commonly referred to as the “Income – Expenses = Savings” equation.
In its basic form, the equation can be written as: Income – Expenses = Savings
Here’s a breakdown of each component:
- Income: This represents the money you earn from various sources such as salary, wages, freelance work, or investment returns. It is the total amount of money coming into your personal finances.
- Expenses: Expenses encompass all the money you spend on various items, including rent/mortgage, utilities, groceries, transportation, entertainment, debt repayments, and other discretionary and non-discretionary expenses.
- Savings: Savings refer to the portion of your income that you set aside for future use or to achieve financial goals. It can include contributions to savings accounts, retirement funds, emergency funds, or any other form of saving or investment.
It is so important to be wise about our time, effort, and money. Some people spend too much time learning a skill that is not needed. Some other people spend too much effort or time in their work with very low payments. We must value our time, effort, and money.
Let’s say I have two job opportunities. One is 12 hours a day for a monthly salary of 1000$ and another 6 hours a day job for a monthly salary of 750$. Which one should I choose?
Or too much effort consuming job which makes me unable to do any other thing with my life. So, we must use our time, effort, and money more wisely.
- We must earn the most money in the fastest and easiest way.
- We mustn’t consume too much of these elements to save another. Those three elements should be balanced.
We will talk about easy ways to make money in the coming posts. I wish to hear your opinions.