No wonder if you ask the question of “How to manage personal finances?” I am sure that majority of people will be left clueless about the answer. Spend less than you earn is easy said than practiced for most of the people but spending more than you earn is definitely an evil and it will bury you in debt in long term if you didn’t get control over your personal finances. Negligence over finances or not sticking to a budget is your type, you should rid of that habit and even for the rest it is important to adopt a budget strategy to take control over managing your finances.
I am not saying that you have to follow your budget plan strictly, personally even I would love to break the rules of the game but over long term it is important to follow a budget and make a financial plan that works for you. After all it is your personal finance and it should be personalized. If you are not confident enough on your financial strategy take help of a certified financial planner (better if he is a fee only planner, to avoid conflict of interest).
How to Manage Personal Finances?
Log Your Expenses
Start logging your expenses no matter how small the amount is, it will help you in identifying the key areas where you are a spend thrift and if practiced for few months you will have a great idea and logging the expenses itself will give you a rough draft for your budget which you can further fine tune to make a solid budget plan that you can stick with for taking control over your expenses.
Tracking expenses is one of the major problem people face while managing their personal finances. Tracking your expenses will help you in identifying the loopholes you have in your personal finances and before you lost track and mess up things tracking would help you in fixing the potholes to great extent.
How to Log Expenses?
You can use any method that is convenient to you, be it an age old notebook where you can log your expenses, an excel program, or the modern age budgeting apps we have in mobile/web platforms. I will share the list of top mobile apps you can use for logging your finances and will update once I publish it.
Start Using Credit Card
The other way to skip logging your finances is to use your credit/debit card for all your purchases so you have a list of your expenses prepared automatically by your credit card company in the form of monthly statement and as a bonus you will be rewarded with bonus points which you can redeem for cash/gifts in future. Please note that this method is suggested only for those who have the habit of paying their credit card dues in time.
Tip: If you have more than one credit card then dedicate cards for specific purpose, for example dedicate one card for food, dining out & groceries and the other card for travel, fuel & maintenance.
Make a Budget
If you are one who wonder what is happening to your money at the end of the every month, it’s high time that you should watch over your spending habits and start tracking your expenses to draft a plan for budgeting. No matter which method you follow to log your expenses, evaluation of your finances at the end every month would help you to identify the categories where you are generous and if it is unnecessary you need to take steps to control your love. For example if you are the one who is fond of gadgets and have a habit of changing your mobile every few months, its high time that you should think once again about your love towards mobile phones as changing them every few months just for the sake of fancying newer technology will make a huge dent to your pocket and is not good for your personal finance. So make a budget that works for you and follow it religiously, breaking it once in a while shouldn’t matter if you have control over your expenses.
Plan for Recurring Expenses
If you have recurring expenses like paying tuition fees for your children, health/life insurance premiums that you should pay annually, etc, you should include them as part of your budget by considering each of these as very short term goals and plan a methodology you need to adapt to pay your dues. If done every month funding or allocating budget for these will be light on your pocket and you will be able to handle it with ease.
For example if you need to pay Rs. 75, 000 every year as tuition fee for your kid every year, it will be easy for you to allocate Rs. 6000 every month and invest the same in recurring deposit or the investment instrument that suits you for funding this rather than arranging Rs. 75000 in one shot.
Stop Living from Paycheck to Paycheck
Last but not least you should stop living from your Paycheck to Paycheck and start building emergency fund if you don’t have one in place. The importance of emergency fund is tremendous in a finance plan and it could you in many ways to cite few it can help you in handling an emergency situation where you need a huge amount beyond your salary, helps you in handling stress in case if you lost your job, etc. I will write a post on why you need to build emergency fund and with detailed use case in future.
Few other things that you need to concentrate for handling your personal finances:
- Assume that you earn less than you actually do, for example if you are earning Rs. 50000 per month, think that you earn Rs. 40000 and allocate the same towards your goals/retirement in addition to your actual contributions.
- Pay down Your Debt as soon as possible no matter how small it is, living debt free life is like living equivalent to living life like a king.
- Plan for your retirement, don’t forget your future and start investing for your retirement today.
- Consider downsizing and change your attitude towards money. If you are living in a place which is huge enough for you check out if it is really required and change to the place which is sufficient enough for you. Likewise revisit your cable, cellular, telephone, electricity bills and reduce the clutter wherever possible.
Between Us: In this post ‘How to Manage Personal Finances’ I have covered things which will work for majority of people but can few other areas which I have not touched here comment out to let me know about them and also let our readers and me know on how you manage your personal finances and what are the steps you follow to keep yourself motivated.
Happy Investing and hope you will take control of your finances today!