What is personal finance and why does it matter?
Personal finance means managing how you earn, possible to spend or save your money in a way that suits your particular circumstances. This process consists of evaluating the amount of money you make, identifying your financial needs, and determining what you will be spending on so that you know how to best allocate it.
Budgeting is an integral part of personal finance whereby people track their incomes, savings and expenditures. It enables one to control his or her life more independently and securely.
What is Personal Finance?
This means coming up with a plan for how much money you will spend on different things based on your current earnings (money you regularly get) as well as ongoing expenses like rent or insurance policies, along with saving/investment purposes.
The purpose of having financial goals can be either some major milestones like retirement planning or buying a car; or the small ones like saving fixed amounts monthly or making your initial investment. Hence, being individualistic in nature, personal finance starts with setting down these goals. Once defined they help in calculating the monthly savings required to reach them.
Personal finance it’s important to note isn’t something done once off but rather an ongoing activity. As such when you grow up and situations change so do your financial needs and objectives. Consequently, reviewing and adjusting personal finance plans every couple years allows them to match up with new realities of life.
Why Does Personal Finance Matter?
Studies have shown that adults are among the leading sources of anxiety from financial matters. For instance fear about imminent expenses may lead to depression insomnia as well as anxiety disorders due to increasing debt loads job insecurities etc. By dealing directly with issues regarding personal finances including uncertainties about future events individuals can minimize related worries which promote steadiness and sanity.
Every day we make financial decisions from minor purchases such as buying coffee in the morning to major choices like taking out a home loan. Thus it’s important to start learning about money management and regularly assessing your financial situation.
How Can I Start Managing My Money?
Budgeting is the foundation of managing finances. The principle behind budgeting is straightforward: ensure that your spending does not exceed your income. This can be done by creating a well-structured plan that captures all sources of revenue and details how such funds will be used for (1) expenses, (2) savings, and (3) investments. In addition, a good budget should contain provisions for an emergency fund that caters for unforeseen contingencies.
Why is Budgeting So Important?
The importance of having a budget lies in its ability to control expenditure while aiming at long-term financial goals; it also points out areas where you might need to cut back on spending especially if you tend to shop impulsively. A budget helps make better financial choices hence minimizing overspending as well as debt. It doesn’t matter what earning bracket one falls under; it remains an invaluable asset since more than your earnings, it’s about what you save and invest.
Steps to Begin Budgeting
Budgeting your way is a great option as it helps you keep track of money in different ways. If you are a traditional person, there is always the option of jotting down your monthly income, your fixed expenses and then tracking all spending and receipts using a notepad.
Alternatively, if you are more modern, setting up an Excel or Google Sheets digital spreadsheet can be helpful. These templates are usually ready-made for convenience purposes by software vendors.
If this seems like a hassle, then try out budgeting apps that come with smart devices. You’ll find many options available and some banking applications even have built-in budgeting tools.
What are Some Budgeting Techniques?
One such technique is the highly popular 50-30-20 rule which is one of the most effective budget methods. Simply put: Fifty percent of your monthly earnings should go towards necessities such as rent or mortgage payments, utilities and groceries. Afterwards, twenty percent would be allocated to savings including emergency funds and investments. Lastly, thirty percent of your salary can be used on such nonessentials i.e., luxury clothes shopping concert tickets meals at restaurants (Willetts).
The percentages may vary depending on how much money one earns per month or year but their essence remains the same.. Let us say for instance that you earn less than this amount; hence you could be saving less than 20% each time that you get paid. Conversely if you have more money coming in each month then maybe increasing savings to anywhere from 30%-50% makes sense too.
Ultimately though your budget must suit both your personal circumstances and overall financial plan meaning it must reflect what really happens in life therefore avoid being idealistic about it (Rothstein). It’s important to note that creating any program ought to remain feasible within the context it exists while also delivering on aspirations moving forward.
Remember also not to think your journey has ended when managing personal finances hence your approach should be sustainable for you.
