A lot of people works and earn money in many different ways but at the end, they can't really figure out where and how their money is being spent, what really takes their money mostly or where they are spending most.
This is where personal finance comes in, it will help you to eliminate overspending and at same time help you to prioritize your expenses and know where you are heading financially.
What is personal finance management?
Personal finance management is the process which involves the act of planning and budgeting of how your money is being spent or saved. This involves setting a clear financial goals and objectives, it could be savings for retirement, to purchase an asset or Investment, or to accomplish one project or the other in the nearest future and you work very hard towards achieving those goals.
A successful personal finance management will require some level of discipline, this means that, after you have created your financial plans and budgets, it could be on a written format or softcopy whichever way you prefer but make sure you stick to it.
Personal Finance
What is personal finance?
Personal finance is the management of one's finances through planning, spending, saving and investing. It is the management of all areas of your family's finance both short-term and long-term.
The phrase also refers to an entire business committed to services and products which is meant to assist you in managing your finances and taking advantage of investment possibilities.
Personal Finance is an essential component of not just managing your day to day financial demands but also planning for your financial future. The sooner you master personal finance, the better your long-term financial chances will be, for instance, things like Investment and retirement planning.
You can better identify possibilities to improve your finances if you grasp the elements of personal finance. This understanding can assist you in budgeting for immediate necessities while also planning for long-term financial goals. The sooner you begin financial planning, the better, even if you think that boat has sailed, remember it is never too late to set your financial objectives to provide financial security and freedom for yourself and for your family.
Top Personal Finance Habits And Tips You Need To Know
1. Set Specific Financial Goals: If you want to be successful in financial planning, you must have a clear strategy and specific goals, you cannot expect to fumble your way to achieving your financial goals, you must put a calculated effort and intentionality to determine just what you want in your financial life.
Just remember that your goals should be an achievable and realistic one, else you will find yourself losing motivation because you won't have a way to really track them.
2. Start Budgeting: Budgeting is one of the fundamentals of personal finance. The term budgeting simply means keeping track of your incomes and expenses, in order to determine where your money is going each single month.
When it is done correctly, a budget puts you in charge of your finances. It allows you to spend more on things you enjoy and less on things you don't enjoy. It allows flexibility, that means you can adjust of shift as life changes and new problems or priorities arises.
A quick search on Google or check on your laptops or phone's app store, shows you different numbers of budgeting apps designed to help you automate your life and make the process of tracking your personal finance easier. Examples of apps includes Mint, YNBA (You need a budget), PocketGuard, GoodBudget, EveryDollar, Monefy etc.
3. Create An Emergency Fund: Paying yourself first, according to this book titled "The Richest Man In Babylon" by George S Clason, the writer recommends that you should pay yourself first whenever money comes in, and also set aside money for unforeseen needs such as medical bills, car repairs, increase in expenses etc.
The optimal safety net, is to have an emergency fund of three to six months worth of living expenditures. The financial experts normally advise saving 20% of your pay to help you achieve this goals. This may not be a quick thing, it may take some people several months or years to saveup enough for a rainy-day fund but don't get unmotivated in the course.
When you take a look at the big picture, you will notice that, it's the emergency fund that saves you in trying times. Continue allocating as much as you can, preferably at least 20% to this goal.
4. Reduce Your Debt/Eliminate Debt: To prevent debt from spiraling out of control, don't spend more than you earn, of course that's often easier said than done and the truth is, most people must borrow from time to time. Also going into debt can occasionally be advantageous, for example, if it leads to the acquisition of an asset.
Taking out a mortgage to buy a property is an example of this, still take a hard look at what items you're obligating yourself to paying off. If it is not debt that allows you to build an asset or something that helps you bring an income, be very cautious about obligating yourself to paying it back.
This includes things like cars, tech appliances, and any myriad of items that you are tempted to put on your credit card.
5. Investing/Having An Investment: Investing is the acquisition of assets that are projected to create a rate of return in the belief that the individual would get more money than they first invested. Investment normally comes with risk, ensure that you know and understand what you are investing on completely before putting your hard earned money into it.
Investing is one of the most challenging aspects of personal finance and one of the areas where many people seek professional help most. There are significant disparities in risk and reward amongst various assets and most people seek assistance with this part of their financial plan.
Remember that, risk tolerance is different from individuals, understanding your own will help you to determine the best ways for you to invest.
6. Use Credit Cards With Caution: Credit Cards can be significant financial traps, but it's almost impossible to survive without one this days. Additionally, they are a crucial components to help build your credit score and a terrific tool to track your spending, it can also be a huge budgeting help.
Credit simply needs to be managed correctly, which means paying off your entire bills every month or at least keeping your credit usage ratio low, that is keeping your account balances below 30% of your total available credit.
Given the incredible rewards incentives available these days, such as Cashback and points, they can make sense to use your credit card more often as long as you pay your bills in full. Note, never use credit cards to their maximum limits and always make your payments on time.
Paying bills late or missing payments is one of the quickest ways to destroy your credit worthiness. If you are honest with yourself and know that credit cards can get you into trouble, then cut it up and use a debit card instead.
7. Think About Your Family: When the time approaches all of us will die one day, we can't escape it. But doing certain things can ensure that your wishes and finances moves on. It's never easy to think about things like this but making your wishes known to the necessary individuals, in your family will only help in the long run.
Create a will and depend on your needs, setup one or more trusts to protect the assets in your estate and ensure that your desires are carried out after you pass on or dies.
It will be best to consider a car, home, life, disability and long-term care insurance. Ensure to review your policies regularly to make sure that it matches your family's needs during life's big milestones.
8. Give Yourself Some Breaks/Take Some Time Off: The pursuit of personal finance will span decades of your life. Budgeting, planning, saving and investing can often be very tiring exercise. Make sure to treat yourself every now and again so that you don't get demotivated.
Ultimately, life is short, so enjoy some of the fruits of your labour, whether it is a vacation, a purchase or a night out. This will provide you with a taste of the financial freedom you're craving so hard to get. Also delegate when necessary, even if you can do your own taxes or manage a portfolio of individual equities, though this does not implies you should.
Setting up a brokerage account and spending a few hundred dollars on a certified public account and/or a financial planner might be excellent approach to help your planning. When you have financial literacy, you grasp all of the facts, tools and principles required to manage your money wisely.
Unfortunately, financial literacy is not taught in many school systems. However if you want to be successful with your finances, you must lookout this information. Taking the time to learn and grow in the basics of personal finance can only help you on your way towards financial freedom.
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