Personal finance is a broad subject that encompasses money management, investments, and savings. It includes budgeting, estate planning, banking, tax planning, insurance, retirement planning, and mortgages, among other aspects.
It is about setting and achieving financial goals, and may involve meeting short-term needs, saving for your children’s university education or making retirement plans. Personal finance is determined by factors such as your level of income, individual desires, expenses, and living requirements, among others- and developing a plan to accomplish those needs within the existing financial constraints.
What does personal finance mean to you?
It’s important to start planning for your personal finances as soon as you can. However, you can never be too late to come up with financial goals to offer yourself and family the freedom and security that everyone desires.
The following are tips that can help you plan for your personal finances:
Create a budget
Budgeting can help you cut costs according to your body size. It can also help you save enough money to achieve the long-term goals that you have set. The 50/30/20 strategy is very effective.
The HR manager of Tactica said that “50% of your net income should go towards rent, transport, utilities, and other living essentials. 30% should be allocated to shopping for clothes and other lifestyle expenses, while the remaining 20% should be allocated to payment of debts, emergencies and retirement planning”.
If you create a budget, then you may never have to deal with ruthless debt collection agencies.
Keep an eye on your credit score
Credit scores are usually built and maintained by credit cards. It is therefore important to monitor your credit spending.
To obtain various forms of financing (such as mortgages), you’ll need to have an attractive credit score.
Create a fund to cater for emergencies
Make sure that you set aside some money to take care of rent in case you unexpectedly get laid off, fall sick or you have to deal with other unforeseen problems. Paying yourself first is the rule of thumb.
Do not misuse credit cards
Even though credit cards can help set you free from financial quagmires, many people have been led into debt traps by the instruments. However, we live in a modern world where everyone expects you to have credit cards.
Proper credit management is very important. Ideally, balances should be offset every month or maintained at the lowest credit utilization rate.
Strive to pay all your bills on time, and avoid maxing out the financial instruments at all costs.
Misusing credit cards can set you on a collision course with financial institutions, and they will, without doubt, send debt collection agencies after you.
Limit debt
The amount of money you spend should be less than what you earn. You should only get indebted if the action leads to the acquisition or accumulation of assets. A good example is applying for a mortgage. However, leasing should be the first option.
Personal finance strategies
It’s okay to think about philosophy once you have come up with fundamental procedures. Learning new skills may not necessarily help you get on the right financial track. You must learn that the principles which make you succeed at work or in business are also applicable in the world of personal finance.
There are three main principles that can help you succeed in personal finance management:
- Prioritizing
- Assessment
- Restraint
Prioritizing essentially means that you have the capacity to examine your finances, find out what brings in money and ensuring that you remain focused on the efforts.
Assessment refers to the primary skill that prevents experts from spreading too thin. Your ambition must be accompanied by a list of good ideas that can help you hit the jackpot, regardless of whether it is your main business or just a side hustle.
Restraint is the ultimate big picture ability of excellent business management that ought to be applied in the management of personal finances as well.
Lessons that you cannot learn in a personal finance class
Getting educated on the aforementioned subject is an exceptional idea for everyone, especially those who are still young-given that they ought to understand the fundamentals of credit management, taxation, savings, and investment.
However, there are certain things that you cannot possibly learn in a personal finance class.
They can be broadly classified into three:
a) Financial discipline
b) Emotional detachment
c) Sense of timing
When should I break the rules?
There are many rules that ought to be followed in the world of personal finance. Even though it is wise to know and obey the rules of thumb, circumstances usually differ from one person to another. Some of the rules that you may consider breaking revolve around the following:
- Investing or saving a significant percentage of your income.
- Long-term investments/ investing your money in risky business ventures.