The ability to manage your personal finance is key for successful long-term financial health and stability. Regardless of how much you earn, being able to make your income work for you is essential. Not everyone requires a large salary and an expensive home and car to be happy, but they do need to be comfortable in terms of being able to eat and sleep in a healthy environment and provide adequate clothing and shelter for their families as well. This can only be achieved through sensible personal financial management, that is, only spending what you can afford, not borrowing money over and above what you can realistically afford to pay back, and ensuring you and your family will be comfortable and able to maintain the standard of living when you retire.
Banks are often very willing to give credit to customers, which is where you need to be careful, they are not so easy going when it comes to paying the money back. Overdraft interest can be very expensive, and you end up paying back much more than you originally borrowed. On top of that, they charge high prices for going over the agreed amount, whether by accident or not, so customers need to be extra vigilant when approaching their limit. On the other hand, when the need is only short term, an overdraft is a very viable option. If you know in advance one month you will be caught short, then having an overdraft facility can be a big help. Similarly, simply setting up and overdraft but not using it until/unless there is an emergency will give you piece of mind that you will not struggle to suddenly raise any money unexpectedly.
Credit cards can be very useful, especially when using them as opposed to debit cards purely to take advantage of any spending bonus points/offers gained by regular use which will only happen if the balance is paid off fully at the end of every month. Having a credit card for emergencies is again a sensible idea, especially for larger, unexpected bills such as car repairs. Many credit cards offer a 0% interest on the balance for a set period, often 6 months, and this can be manipulated so that you change company every six months to avoid paying any interest. Of course, this just keeps the interest rate down; it does nothing to shave the amount of what you owe. It is a common mistake to see credit as an extension of your wages nothing could be further from the truth, it is not your money. You will have to pay it back at some point, and the sooner the better. Therefore, the best advice is again to only borrow what you can afford to pay back.
Finally, to secure your future when you eventually settle down and retire, it is an extremely advisable idea to set up some form of pension scheme, whether that is with your bank, or your employers. Pension schemes can move from company to company in the event of job changing, and your employers simply take a percentage of your wage each month and put it aside, to be given to you in a lump sum as and when you are retired, so you can maintain a good living standard when you are no longer working.
We are living in a society of consumerism. Prices skyrocket demands multiply; the only thing that remains static is your income. How to survive in a consumer society keeping a control of the expenses?
Personal finance is all about planning your finance. You need to keep a budget in every step of your life. Start from the household budget and categorize the household expenses as follows.
Fixed expenses – These are monthly bills to be paid such as rent, telephone, cable, electricity, etc.
Variable expenses – These include the cost of all essentials including your food, medicine, entertainment expenses, etc., and may vary slightly depending on the items purchased.
The extra cash that you have after deducting the expenses for the above determines your true financial status. If your extra cash is zero, or if it is negative, you have to seriously think about reworking your personal finance plans or consult a financial adviser.
What if you have loans and debts to be paid off? Most of the people have mortgage payments, auto loans, credit card payments and other types of loans recurring every month.
The best possible way to balance these is to maintain a decent debt-to-income ratio. Always make sure that your debt-to-income ratio is never higher than 50%. If you are overloaded with too many loans, consolidation of the heavier loans will be a better option than keeping a bad record of the debts.
Refinancing your mortgage is chosen as the best option by many debtors to consolidate their debts. The only thing you need to be careful while refinancing is to get a better deal, in terms of the market value of your property and the best interest rates. Higher the market value of the property, higher is the loan amount. With lower interest rates and longer mortgage period, your monthly payments will be reduced considerably, relieving you from your debt worries.
Possessing a credit card is another way to keep your finance move without worries. You can handle the day-to-day expenses without looking into your pocket always. But make a habit to pay off the balance at the end of the month. You can opt for credit cards that offer lower interest rates so that you can bear a certain debit in times of crisis.
Insurance is another important rider in personal finance. Possessing a personal insurance, home insurance, and auto insurance are the smart ways of dealing with the hurdles that may jump on your way. It is also a good investment option and a beneficial tool to secure your life and property from the unexpected disasters.
Once you take care of your loans and emergencies, the next step is to think about the investment options. There are many investment plans that ensure huge returns irrespective of the market fluctuations. There are long-term and short-term deposits offered by different banks and credit unions. One of the safest ways of saving money is to invest in money market accounts (MMA). MMAs offer a greater interest rates and insurance for your deposit.
To overcome the rainy days of your life, you need to keep a good control on your finance, whatever may your present status be.
Understanding how to manage your personal finance goals will bring rewards rather than despair. We all want a secure future so here are a few things to help you get started.
Firstly, know your current financial status. This can be a little intimidating for some, but it is essential to a better financial future. This entails knowing three important things: your expenses, financial problems and financial desires.
Be aware of how much you spend in order to find out how much you can afford. Write down your monthly expenses if you have time, or use a personal finance program. Make allowances for problems that may arise such as unexpected doctors bills, school uniforms, tax returns.
Knowing your lifestyle aspirations is just as important. Taking note of your desires will help you decide which ones are reasonable and which ones are not. Focus on the reasonable ones as they will provide the motivation to manage your personal finances.
Honesty is another key attitude to managing your personal finance plan. If you decide not to accept the facts surrounding your current financial status, you are not likely to move ahead. Be honest with yourself in how much you can afford and how much you owe, otherwise your financial plan will most likely end in financial trouble.
Discipline is perhaps the most important when managing personal finance. Once you have discovered what you truly can and cannot afford, you must learn to say no when needed. This is easier said than done, but if you are determined on having a financially secure future, discipline is imperative.
Knowledge is most definitely power. You must be wise in your investments if you wish for success in your personal finance. Consult accountants and financial planners, research on trends on the market or speak with your friends and co-workers about their investments. This research is sure to pay off whereas lack of it will surely lead to more debts and deviating from your personal finance plan. Also, diversify your investments to reduce risk and leverage out your financial investment. Very simply, the most effective method to improve your personal finances is to spend wisely. Do not spend more than you can earn. Make sure all your expenses are covered first. Understanding this will allow you to manage your personal finance a little better.