There is no magic formula when it comes to managing finances. It takes planning multiple milestones, from getting out of debt to creating strict budgeting.
Parents often teach their kids to study hard, land a good job to receive a hefty salary, and live the life they always imagine. Most children with this upbringing exerted effort so hard in their studies—just to find out that they will be stuck living from paycheck to paycheck for years after they graduate.
Universities can help you upskill and land a job, but they don’t teach personal finance management. The sad truth is, no matter how successful you are in your career, if you don’t know how to manage finances wisely, you will always be glued close to poverty.
Managing finances is not easy, especially in this era where shopping is rampant. Placing an order can be made with just a few clicks. Showing off items on social media is widespread, and people frequently get tempted to acquire the good things they see, leading to a disproportion of budget allotment.
While bringing people together is among the most significant contribution of technology, it is a poison for others.
Building a constant awareness of where your money is going in and coming out is necessary. Without keeping track of your expenses, you might not be able to release yourself out of the rat race. You should practice being in complete control of all the money you earn and use.
Personal Financial Management
Personal financial management is relevant to everything about money management, including savings, banking, investments, mortgage, taxes, retirement plan, and insurance. It covers necessary practices to help you reach your short and long-term financial goals.
Knowing your current financial standing is crucial in personal finance management because it serves as a finance GPS that help you recognize where to go— the best route to make the most of your income.
Good financial management allows a person to gain authority over your monetary condition, so you could create a budget plan that matches your expenses and future expectations.
Importance of Personal Finance Management
Life will not always be sunny, so you have to save for the rainy days. In life, no matter how much you might want to avoid it, there come unexpected situations that may require ready money at hand.
Money for emergency expenses
When you manage money correctly, you will have enough money that would cover unforeseen life events without bankrupting yourself and going into debt. For example, you suddenly lose your job, or you have to pay for unbudgeted expenses that come up. Think of it as life insurance that can be accessed anytime you need it.
Plan for your family’s future
Growth accommodates more responsibilities like having a family. Building a financially strong family security is imperative to money management. Taking control of your finances will help you set aside money for your child’s education or family’s health insurance.
Open to investment opportunities
Regardless of how much you are earning now, there is no guarantee that you will savor a financially satisfying future, so you need to prepare for it. Practicing equitable finance management helps in building up funds that you can use when a good business opportunity comes on your way.
Better living standard
Whether you want to go on a grand vacation or buy a new house, you can only accomplish what you perceive as a better living standard by properly managing the money you earn today. If you rush in buying the things you don’t necessarily need, you might have to sacrifice the things you badly want.
Enhance financial intelligence
Even simple financial planning could expose you to greater financial comprehension. Once you start planning for your future, you will need the professional services of financial advisors. As you work converse and work closely with these money experts, you discover new information and improve awareness about previously unheard-of financial concepts and ideas.
Strategies In Controlling Finances
Notwithstanding if you are currently stuck in a frustrating debt cycle, making too little income to sustain your fancied living, or just simply want to rekindle lost major financial goals, here are the plan of action you can take to make a big leap and eventually build wealth.
Have proper budgeting
Without a budget plan, you are more likely to struggle to handle your finances because you don’t have something to restrain you from spending. Consequently, you might find yourself buying unimportant things without actually being aware that you are spending more than you should.
There is a famous budgeting method known as 50/30/20. The 50% of your income after the tax goes to essential living expenses like utility bills, food, rent, and transport, while 30% can be allotted for your recreation, vacation, and charity. The 20% should be set aside for savings, investments, insurance, and retirement plans.
Budgeting is one of the keys to changing your future. Identify your needs and wants, then implement a budget accordingly. Start living a life you can afford.
Open the right bank account
Several people think that all bank accounts are all the same, but they are not. You have to open savings, checking, or investment accounts, which will be the foundation of your financial success.
The fund for checking account can be used for daily purchases, while the money on your savings account should be preserved. If you don’t separate these two, you might mismanage your funds and squander your savings unknowingly.
Keep track of your daily expenses
Take even just 5 to 10 minutes to audit all of your purchases and receipts every day. By doing this, you will know if you’re spending beyond your budget.
Free yourself from debt
As obvious as it may seem, debt is the biggest barrier in pulling off financial goals. You need to break through them first before you can actually start building wealth. Single out all recurring debts and start paying them even with a small amount so you can progress.
If you have too many debts, identify which one needs the most attention, then pay them one by one.
Debt doesn’t just affect finances but also the health of the borrower. Outstanding payments could cause so much frustration and stress that might affect health.
There are numerous routes you can take in order to pay off your debts. You can start a side hustle to increase your income and bring in extra cash. The currently in-demand side hustles are freelance work-from-home jobs, which you can be accomplished anytime and anywhere. You could also get a second regular job and sell off unused items at your home.
Lessen your personal expenses
To lower down expenses, always go back to your budget before purchasing anything. Are you buying an item that you can’t live without? Or do you just want to buy it without any particular reason and value? If so, don’t buy them.
Also, take a look at your expenses and compare them to your budget. If you find any unnecessary purchases, cut them down the next month. By doing that, you will have more money you can use to pay off your debts.
All of these strategies are interconnected, you will find yourself doing one and the other.
