Everyone wants the comfort of having not to worry about financial responsibilities like rent and school fees. This can only be achieved through proper management of finances.
Corporate Finance Institute defines personal finance as the process of planning and managing personal financial activities such as income generation, spending, saving, investing and protection. Being able to manage your finances is among the most important accomplishments you need to achieve because every aspect of life depends on it. When seeking financial freedom, personal finance plays a significant role. Therefore, having the necessary personal finance skills will help you to ensure all your money is managed well. This will help propel you to a bright financial future.
Here the ways that can help you manage your personal finances:
Set financial goals
Having both short- and long-term financial goals in place will guide you on how to go about and eventually figuring out the best way to manage your finances. Financial goals will also push you to be disciplined enough as far money matters are concerned in that you will be able to start working towards achieving the said goals.
Long-term financial goals might include being stable and financially independent, starting a family, building or buying a home or even retiring early so as to start your travelling dream to various destinations across the world. Short-term financial goals, on the other hand, might include clearing a loan, starting a business or just going on a vacation during the holidays. Achieving these goals will depend on how well you manage your personal finances and they will also dictate how you spend your money. Once you have set your financial goals, make sure that you also prioritize them.
Create a financial plan
Planning is very important in life and the same applies when managing your personal finances. Creating a financial plan will not only guide you on how to go about your spending but will also help you with achieving your financial goals. The process of creating a financial plan entails analyzing your monthly income vis-a-vis your spending habits. Note down all your monthly expenses from the basic ones like food, rent, and the amount spent on utilities to the ones that you might do away with eating out and entertainment. With this plan, you will be able to figure out how much money you allocate to expenses and have more room to set aside more money for emergencies and savings.
Learn the art of saving
Personal financial management also entails leaning the art of saving. It has been said over and over again that at least 15% of your total monthly income should be directed into savings but your financial goals will be key determinants on how much more you will need to save every month. Once you get your income, allocate a specific percentage of the money into your savings before you start spending. Savings are important because they will tend to give one a sense of financial security by the fact that one can plan for their future and bring you one step closer to achieving your goals.
Have an emergency fund
An emergency fund is money set aside to cater for any unexpected life event. This money is specifically meant to settle or fix emergencies and avoiding debt while at it. When managing your personal finances, remember to have a kitty for emergency funds, which should be different from your savings. An emergency fund comes in handy in times such as the COVID-19 period. No one had foreseen this pandemic and people have ended up closing down businesses, losing jobs while others have been forced to seek alternative ways of generating income due to salary cut-offs. Having an emergency fund helps to foot bills comfortably during such tough times as one figures out their next move. When managing your personal finances, one should, therefore, consider setting aside some money in an emergency fund.
Familiarize yourself with the art of managing your personal finances. Invest in yourself and your financial future now. Remember how well you manage your finances will depend on your financial behaviour.