Managing personal finances. It can be a challenge for various reasons. Regarding personal finance management, your goal might be to make positive changes to your financial circumstance and live more comfortably. The question is, how can you begin to manage your personal finances more simply? And which steps can you take to stay on top of your personal finances both now and in the future?
What do we mean by personal finance?
Let’s start by defining what personal finance is. As well as budgeting and saving, personal finance is a term that refers to managing your household or individual finances. It encompasses the financial choices and actions you take to plan your finances and incorporates key activities such as:
- Creating income, and
- Making adjustments to your outgoings
Which factors influence the way you manage your finances?
A few factors can affect how you manage your personal finances. As well as any debts you may owe, which will determine which actions you take to maintain your finances, you’ll also need to:
- Consider whether you want to save to achieve any financial goals
- Think about if you want to invest in future opportunities
- Consider whether you’re aiming to gain financial independence and retire early
Enhance the way you manage your finances
Here are our four tips that will give your personal finance management a real boost!
Create your budget
Though it can be challenging to stick to a budget, it’s vital for managing your personal finances. Here’s a tip that will help with this – divide your outgoings into categories and apply the 50-20-30 rule. This rule of budgeting breaks your expenses down into vital expenses, savings, and costs that are not essential. As described by Forbes, you should dedicate 50% of your financial income to vital expenses like mortgage payments, food, and health costs, 20% to savings, and 30% of your income should go to luxuries or extras.
Now, one thing you’ll need to bear in mind with this rule is that you might sometimes find yourself spending too much on certain categories. That’s where a money management app can really help. By tracking your outgoings, such as your bills and direct debits, you can stay on top of your expenses and stick to your budget.
Keep one eye on your credit report
Keeping track of your credit report is useful if you intend to take out a home loan, but going a step further it’s an ideal way to manage your personal finances. It will show you how much you’ve borrowed, so you can keep better track of what you’re spending. A good credit score falls between 666 and 755, an excellent score is anything over 841.
Keep debt to a minimum
When it comes to personal finance management, you’re going to want to keep your debt to a minimum. Certain debts, such as student loans or business debts, may be considered better than other types of debt. But when it comes to clothing, vehicles, and entertainment, if you’re borrowing a lot of money to finance these costs, you might find it challenging to manage your personal finances easily. Avoid using credit cards for things that you don’t “need” and try to pay cash as much as possible.
Consider investing your savings for retirement
Finally, investment can be a positive way to manage your personal finances by looking ahead. In the long term, it’s a good way to plan for retirement and can help you put in place provisions for your future. Whether you’re looking to retire early, or are contemplating working part-time in the future, think about how much you’ll need.
The majority of people will need 70 – 80 percent of the salary they currently earn their retirement – this is where investing some of your savings can support your retirement goals. Investing early in high risk/high reward opportunities may give you bigger returns, but always consider your risk level
Managing your personal finance: the key takeaways
It’s not always easy to manage personal finance, but it’s definitely achievable. The key things to remember if you want to manage your personal finances successfully are to consult your credit report regularly, save for the future, and plan for investment opportunities to contribute to your retirement
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