Personal financial management is increasingly be coming difficult by the day. Especially in this era when we’re can have unfiltered access to our money and pay for anything with just a press of button. It will require a deliberate financial planning to manage one’s finances this time and in the future.
Personal financial management means process of planning and budgeting for how personal money is saved or spent.
This article tries to explain how you can succeed in personal financial management on the midst of these challenges.
Personal financial management involves setting financial goals, such as saving for retirement, investing in assets, and working hard to achieve them.
One of the major factors that can affect how you manage your finances is the cost of living.
The cost of living is the total amount of money you need to cover the necessary basic living expenses. They include food, housing, utility bills, healthcare, transportation, and even insurance. Since funding of the family home or the Health Savings Account (HSA) fall under basic living expenses, cost of living therefore becomes significantly most important factor to consider in your personal financial management. To reduce cost of living, you can use a cost of living calculator to determine affordable places and house to live, and adjust accordingly.
To have more understanding of personal financial management in setting yourself up for financial success, you need to know the importance of financial planning.
How to Manage Your Personal Finance
Determine Your Financial Goals
The first step in managing your finances is to determine your long-term goal. A clear goal, paints a clear picture of what you need to do to get there.
Understand Your Financial
Managing Income & Cash Flow
You need to have a thorough and detailed system through which can be able to track and understand your income and expenses. Managing income and cash flow allows you to get the most out of your finances and ultimately gain capital that can be used to address other concerns and set you up for a financially stable future.
But how specifically should you track your finances?
Keeping rack of you’re your finances is the simplest aspect of financial planning. It’s truly as simple as keeping detailed records.
For example, by having record of how much money you make per day or week, or month, as the case may be as well as deciding how much you spend in that same period - not just on daily expenses but in rent, on subscriptions, for insurance, etc. – this can quickly give you a picture of what kind of financial trajectory you're on.
You can then make adjustments where necessary accordingly, by either cutting down expenses where possible, other to look for ways to increase your income to enable you to have amount of income that you actually get to save.
Managing Financial Security and Growth
Another area to looking into in managing your finances is financial security and growth, and this are in various forms: such as, insurance and investment.
These are areas you can only effectively look into once you have succeeded in managing cash flow to keep some expendable capital to make some necessary investments and purchase insurance policies.
Financial investment, however, involves a great deal more in the way of strategic thinking and risk management. As mentioned previously, fostering growth and acquiring valuable assets are major components to personal financial management, and both can be accomplished through a strong understanding of how and when to invest.
Insurance, for its part, is one area of financial investment in which there's often little wiggle room.
It's a nasty little reality that you simply need good insurance to protect yourself and your family from falling on hard times. And the truth is that it's difficult to develop an overarching strategy for managing insurance costs because different types of insurance (auto, home, health, life, etc.) involve different variables and considerations, and sometimes entirely different companies. But suffice it to say when forming a financial plan, insurance costs are as vital to factor in as regular expenses.
Establishing Liquid Savings
Another very valuable point, with regard to investment, that some of the money you set aside for growth or savings should be readily available in the event of an emergency.
For many, this simply means maintaining a savings account with an "emergency" or "rainy day" fund. However, for others it simply means seeking out different types of investments meant for long-term growth and allows for quick transactions. Our page, Financial Contingency Planning has more on this.