PERSONAL FINANCE MANAGEMENT
In simple words, personal finance is all about managing your income to provide you with financial security for the future through savings and also helps you make strategies to reduce unnecessary expenditures.
Why is personal finance necessary?
Personal finance is a way to meet one’s financial goals in life. Inappropriate financial management can lead to disaster for future requirements and financial securities. First, we need to start with income to understand personal finance management. It is always good to plan first before spending money on your income. If 60 percent of income is separated for necessities like groceries, food, rent, taxes, and personal use, then saving 30 percent for emergencies is good. In comparison, the remaining 10 percent should always be invested somewhere.
Aspects of Personal Finance
Income: It is the first stage of finance management. Earnings are allocated for expenditures, savings, and investments. Income means salaries and earnings.
Spending: Most income is always separated from expenditure, which is also an essential requirement. This includes groceries, rent, tax, interest, medicines, sources of entertainment, and travel.
Spending within limits according to income could be the most challenging.
Savings: Savings is the remaining portion of income after expenditures. It provides future security in the event of unexpected emergencies. At least 20 percent of income should be allocated to savings. Saving would help achieve future goals.
Beyond that, only saving money in an account will not be a great idea since it cannot beat the inflation rate shortly. For example, if you have 100 dollars for now and wish to get a bike, in the future, the same bike would cost you 110 dollars due to the inflation rate, whereas the balance in your savings account would hardly grow to 105 dollars until that time. So, if there are no indications of emergencies shortly, it is better to invest money where it grows and maintains its value.
Investing: Investing is all about buying bonds, stocks, and shares. Investing can give better returns than the actual investment amount but also carries risks. Investments in a better place can yield significant returns over a certain period.
Investing requires deep study and knowledge; only then would it become a comfortable zone to work in. Once you learn about investments, they can give you significant returns.
How to make plans for Personal Finance
Planning your income plays an important role in personal finance management since there are many areas to work out, such as savings, investments, spending, budgeting, and securities.
- We should always seek multiple income sources to extend our earnings. This would assist us in increasing the percentage of our savings and investments. It is said that if you have only one source of income, you are just a step behind in poverty, so looking for multiple opportunities would be a great idea.
- Proper budgeting is essential so that you can get rid of unnecessary expenditures. It is always good to decide at the beginning, when you are paid, how much of your income should be allocated for spending and the rest for savings and investments. This will give your finances a proper direction.
Proper expenditure tracking regularly would help find areas where more spending is taking place. For this, you can use the income app, the pen-and-paper method, or create spreadsheets that help you stay updated.