What is personal finance?

Published : 6 years ago, on 16/10/2018

Personal finance is all about how you manage your money. Are you spending more than you are earning? Are you free from debt? Are you saving money every month or spending it all? Have you planned for your retirement? If you have answers to all these questions, it means you understand the importance of managing personal finances. In case you have answered no to these questions, don’t worry you can start managing your finances from today.

Personal finance involves making a financial plan for you and your household, where you plan for monthly expenses and savings and also plan for your retirement.

Personal finance is not rocket science, even if you don’t know anything about finance, you can manage things well, with some methodical planning.

Make a financial plan

If you want to manage your finances properly, first thing is to make a financial plan. Write it down in a diary, you don’t need excel sheets. Write down all your sources of income and then list out all the expenses for the month. Compile this for a year and add other annual expenses, like a vacation, insurance premium payment. If you find that your income is more than your expense, then things are looking good, else you need to start cutting down on expenses.

When you make a plan, set your financial goals. You need to plan for your retirement. You may want to buy a house, plan for your kid’s college education. Estimate how much you may need and then add inflation to it. Remember the value of 100 today will be 75 in 5 years’ time if inflation is at 5%. Once you decide your goals, you need to start saving money for it. Decide on how you would invest your savings, so you can achieve your goals. If you find that you are not able to save any money currently, you need to seriously think of finding ways to earn more money or cutting down unnecessary expenses.

Try to be debt free

Debt is a major roadblock for your future plan as part of your earnings goes away in monthly payments. Try to avoid getting into a situation where you have to take a loan. If you plan your finances properly, you can avoid getting into debt. In case you are already in debt, try to clear the debt at the earliest. You can think of selling some assets that belong to you to make money or even take up an additional job to get more money to pay off your debts. Since we are talking of debts, make sure you use your credit card wisely, else you will end up paying huge interest amounts.

Track regularly

Track your finances regularly. Every month check if your expenses are under control, so you can save some money and invest it for the future. There are a number of mobile apps and free software available which can help you track and manage your finances effectively.

Take advice

Take advice from professional financial advisors. They will tell you how you can save money so you can achieve your goals. They will also advise you on how you can keep your personal finances in order and manage it effectively. Attend free seminars conducted by experts so that you understand how you can manage your finances in a better way.

Managing one’s personal finances is very important as it helps you to plan properly for your future. Setting goals and tracking your personal finance regularly will put you on the road to achieve our financial goals.