When you hear personal finance, the first thing that probably comes to your mind is that it is money-related. You are right. Personal finance has to do with your money as relates to banking, leverage or debt, credit, capital markets, and investments.
Basically, it refers to your money management procedure. Personal finance is highly important in the life of everyone. Being able to effectively manage your finances would profit you a lot on the long run.
Are you one of those people who blow through money before it even enters their bank? Do you have constant unending needs which never seem to end and you end up not having any extra? Are you struggling with your planning and savings habits?
This article explicitly elaborates what personal finance is, how it works and how best you can effectively manage your finance. Are you ready to be enlightened? Keep reading.
What is a Personal Finance?
Personal finance entails managing your money as well as saving and investing.
Your personal finance may relate to meeting your financial goals, ensuring you have enough for short-term needs while still preparing yourself for long-term and possible emergencies, retirement plans, mortgage, and tuition for your child’s college education.
How successful you would be with your personal finance depends on your income, expenses, living requirements, and individual goals and desires and coming up with a plan to fulfill those needs within your financial constraints. You must be able to spend way less than you earn.
In handling your personal finance by yourself, it is important that you are financially literate, so you can distinguish between good and bad advice and make smart decisions.
You can get this knowledge through taking courses online or in a traditional schooling system. The process of managing one’s personal finances can be summarized in a budget or financial plan.
Do I need Personal Finance?
Personal finance involves developing strategies that would work on your budgeting, creating emergency funds, paying off debt, using credit cards wisely, saving for retirement, and controlling other reasons why you spend money.
When you have knowledge of your finance, the odds are that you would know how to manage your money properly. Who wouldn’t want to manage their money properly?
In having a knowledge of your personal finance, you would learn discipline with your money. You would also know when it is important to break those rules you have set for yourself for a bigger and better picture.
Everyone needs to have knowledge about personal finance to enable you to manage your funds more prudently.
What are Personal Finance Strategies?
On your journey towards learning about personal finance, it is important that you have an idea about personal finance strategies and how best you can use them in managing your finance.
1. Devise a budget
In understanding and effectively managing your personal finance, it is important that you devise a budget to ensure you live within your means.
In devising a budget, you can save enough to meet your long-term goals. The 50/30/20 budgeting method offers a great framework and has been proven to work wonders most times.
It entails- Fifty percent of your take-home pay or net income goes toward living essentials, such as rent, utilities, groceries, transport, and any other expenses that might show up.
Thirty percent is allocated to discretionary expenses, such as dining out and shopping for clothes. Twenty percent goes toward the future, paying down debt and saving for retirement and emergencies.
2. Create an emergency fund
It is important that in handling your personal finances, money is set aside for unexpected expenses, such as medical bills, a big car repair, or things to fix in your house.
See this emergency fund as a safety net to ensure you don’t get caught off guard by an urgent situation.
3. Limit debt
This is one of the hardest things about your personal finance. Once you have money, you automatically want new things and in doing that, you might run out of money before your new paycheck.
Ensure you do not run into debt because as the debt may seem, it would slash down your finances more than you know.
4. Use credit cards wisely
As funny as it may sound, credit cards are major debt traps, but it’s unrealistic not to own any in the contemporary world.
Furthermore, they have applications beyond buying things. They are not only crucial to establishing your credit rating but also a great way to track spending, which can be a big budgeting aid.
Using a debit card, which takes money directly from your bank account, is another way to ensure that you will not be paying for accumulated small purchases over an extended period with interest.
5. Monitor your credit score
Credit cards are the main vehicle through which your credit score is built and maintained, so watching credit spending goes hand in hand with monitoring your credit score.
If you ever want to obtain a lease, mortgage, or any other type of financing, then you’ll need a solid credit report. There are a variety of credit scores available, but the most popular one is the FICO score
6. Consider your family
Making a will in modern times is underrated. Make sure that your assets are protected and in case of any emergency and you are not found, that they would be able to have access to the funds which you have accumulated over time.
You can also set up trusts and set up insurance for your family to ensure they are taken care of in the event of your demise.
7. Pay off student loans
As a graduate, you would probably have a backlog of debts due to your student loans. Look out for several repayment plans that can enable you to pay off your student loans more steadily and with ease.
If you’re stuck with a high-interest rate, then paying off the principal faster can make sense.
8. Plan (and save) for retirement
As you are spending money, also remember that in the nearest future you may be required to retire. Research has shown that you need about 80% of your current salary for a comfortable retirement.
Don’t sweat it though, you can only do the most that you can for now. Put the little you can when you can but be very serious about putting the little. In no time, you would see how small amounts grow over time.
9. Maximize tax breaks
Try as much as you can to maximize your tax breaks. By maximizing your tax savings, you’ll free up money that can be invested in your reduction of past debts, your enjoyment of the present, and your plans for the future.
Try as much as you can to still keep the receipts of your tax deductions and credits. Focus on taking advantage of every tax deduction and credit available, as well as deciding between the two when necessary.
10. Give yourself a break
If you can stick to your personal financing goals by properly budgeting and planning, you should step out of your strict zone once in a while a get yourself something nice.
This may include having a nice meal or getting yourself new clothing.
In doing this, you would encourage yourself and ensure that you enjoy the fruits of your labor
If all of these feel too tiring for you, you could also attempt hiring someone to do these for you. You can set up an account at a brokerage and pay a certified personal finance planner to do all of these for you.
That way you would not have to worry because he would take charge of the planning and proper strategizing.
How do you learn about Personal Finance?
There are several ways you can learn about personal finance. You have a lot of options so it is important that before choosing, you figure out what works most efficiently for you.
If you have money to spend, you can consider getting certifications in personal finance management. You could also choose to do it online. This entirely depends on you.
Some of the ways through which you can learn about personal finance are-
#1 Online Blogs
In the world today, you can learn almost anything online. Online blogs are a great way to learn about personal finances and how to best manage them.
From online blogs, you would learn exactly which challenges real people are facing and how they are addressing those challenges.
Some of the online blogs that give deep insight and where you learn about personal finance are- Mr. Money Mustache, CentSai, Million Mile Secrets, and The Points Guy.
These online sites give you different tips on how you can manage your finances. You should totally take advantage of them.
#2 From the Library
The library holds a lot of information that can be found in books. All you need is a way to be able to find what you are looking for.
Some of the books you can look out for while in the library that can give you the knowledge you seek are- I Will Teach You to Be Rich, The Millionaire Next Door, Your Money or Your Life, and Rich Dad Poor Dad.
Personal finance classics such as Personal Finance for Dummies, The Total Money Makeover, The Little Book of Common Sense Investing, and Think and Grow Rich.
Pay attention to detail when reading these books to ensure you get the most out of them.
#3 Free Online Classes
There are certain free online classes that take courses on personal finance. You can check out EdX, an online learning platform created by Harvard University and the Massachusetts Institute of Technology.
It offers at least three courses that cover personal finance: “How to Save Money: Making Smart Financial Decisions” from the University of California at Berkeley, “Personal Finance” from Purdue University, and “Finance for Everyone: Smart Tools for Decision-Making” from the University of Michigan.
It would teach you most of the things that are necessary that you learn for your personal finance.
Podcasts are a great way to learn how to manage your money. The beautiful thing about podcasts is that you can take the lessons anywhere. You can listen to an expert talk about personal finance on your way to work and even in the shower.
You must be very willing to learn from the podcast to be able to make anything out of it.
Frequently Asked Questions On What is Personal Finance?
Yes. It is important that you have knowledge about your personal finance to ensure you do not blow through your money as soon as you earn it.
No. You just have to be more careful with your spending and avoid debts.
No. it just means you are very careful about your expenses to ensure you never go broke again.
Avoiding debts and investing frequently are the best ways to manage your personal finance.
No. Personal finance has to do with the effective management of your finances. You need money to do any of that.
“Personal Finance is made up of various parts, but can be summarized as budgeting, setting spending and saving priorities, cash flow planning, and efficiently maximizing benefits through rewards programs.” – Anthony G. Lanza, Spectra Investment Management
Personal finance is very important and if you have money, you should have knowledge of it.