Personal Finance
Managing Personal Finances for Success
One of the hardest things to manage in life can be your personal finances. Many consumers do not know what it means to manage their personal finances. At a young age we are told to be smart with money, but seldom are we taught exactly how to accomplish this. There are questions that can help determine if you have managed your personal finances correctly. Learning to do this is may be one of the hardest things that you can do as a young adult. However, the sooner consumers learn to master their personal finances, the sooner they can begin to lead a very happy and financially stable life.
So where do we begin? There have been may books written on the subject of personal finance, the majority of these publications seem to share five key components.
Financial Assessment
A personal finance assessment can be completed with a simple income versus expenses balance sheet. Simply list your valued assets (i.g., monthly income, bank accounts, savings, stocks) and then list your debt or liabilities (e.g., credit card debt, any personal loans including automobile, home mortgage, student loans, etc.). This first step in financial planning usually displays a fairly accurate picture.
Financial Goals
Setting financial goals is a great way to build financial discipline. It is a good idea to have both short-term and long-term goals. Some examples may include saving for a downpayment on a home within three years, paying off credit card debt within two years, paying off student loans, building a college fund for children or retiring as a billionaire by the age of sixty-five. It is important to set financial goals, no matter how big or small.
Financial Plan
A financial plan is the “how to” part of successful financial planning. It should clearly illustrate exactly how you will achive your goals. For example, reducing expenses, increasing income, investing, etc..
Financial Monitoring
A successful financial plan must be monitored regularly. Unforseen changes such as an unexpected emergency may cause us to have to adjust our plan, this is normal. The key is to be ready to make the necessary and required adjustments to your plan. This will help ensure success.
The first question you should ask when looking at how to manage your personal finances is, can you meet your living expenses without using credit? This means you can handle your living expenses, month after month without accruing a lot of credit card debt? If you cannot, then you have not learned how to manage your personal finances the right way yet. This is something as consumers we have to learn how to do. You have to learn how to break away from reaching for a credit card and begin to live debt free. Only then will you be able to take control of your personal finances.
Then next thing that you have to look at is if you have any savings? Usually consumers are taught saving money is something you do later in their life. However, learning to think about savings now is a good way to get your personal finances in order, even as a young adult. Remember, you need to make sure you can meet your living expenses first. Once you can do that, then the focus should be on savings. After all, you cannot start saving money before you meet your living expenses. The sooner you can begin saving money, the sooner you will get your personal finances in order.
The most important thing that you have to look at when you are trying to manage your personal finances is your job. You need to look at if you have a steady job that has reliable income. Now this is something that can be hard to do. In todays’ job market you never know when you could get let go. Even with a bigger company or being your own boss, there are no sure bets. This fact alone should be motivation to push consumers to get your personal finances in order. Your personal finances are the main objective that you need to be concerned about. Get those in order first before you worry about other things.
The last question that you need to answer when dealing with personal finances is, do you have emergency funds? This means if something goes down, do you have the money to cover it? If you do, then you have your personal finances in order. Of course, this is a thing that goes hand and hand with savings. Keep all of these components in mind when you are reviewing your personal finances and the road to financial freedom will not appear so bumpy.
Beginning a personal finance plan requires discipline and consistency. Many consumers find it helpful to obtain assistance from professionals such as accountants, financial planners and investment advisers.
Whether you choose to begin a financial plan on your own or with the assistance of a professional one thing is for sure, in the very near future you will be extremely pleased that you did.
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