You don’t need a financial expert to manage your finances for you. The only person you need to manage your finances is you. After all, it’s your personal finance.
At its simplest definition, the term personal finance broadly pertains to the management of money, saving money and investing money.
Yes, you read it right. The first step in managing your finances is to invest — in yourself. Invest in yourself through learning about money and finance. Broaden your skills and knowledge. The Internet is a great resource; you can spend years learning financial stuff and other beneficial things through the responsible use of the Internet. Use any resources at your disposal to attain financial literacy. No more excuses, strive to learn every day.
Make everyday count.
Analyze your current financial status
The second step in managing your personal finance should be assessing your current financial status. You must become aware as to what is your present situation and where your economic trajectory is heading.
Calculate your net worth
- If you have a debt, determine the debt-to-income ratio.
- Monitor your Credit Score and Credit Report.
- Check your savings.
- Observe your investments.
- Define your financial goals.
Design a budget plan and stick to it
Creating a budget plan means nothing if you don’t execute it. If you’re having a hard time creating the perfect budget plan, you might want to try the 50/20/30 budget rule. It was popularized by Senator Elizabeth Warren. The 50/20/30 budget rule is budgeting technique wherein 50% of your income should go on needs, such as everyday necessity and daily expenses. 20% of your income should be used to fulfill financial milestones, such as paying off debts, savings, and investments. Lastly, 30% of your income should go to your wants, meaning products or services that you don’t necessarily need. It’s worth noting that you are free to tweak the 50/20/30 budget rule percentage to suit you better.
Part of managing personal finances is being prepared for unexpected financial expenses. To briefly summarize, emergency funds acts as an ‘urgent cash reservoir,’ wherein money can instantly be withdrawn when an emergency happens. Emergency funds settle the uncertainty of financial stability. Typically, an emergency fund is considered adequate if it could last up to three to six months.
Michael started out with a degree in Finance Master, before devoting his time to tech and coding. He now works as a freelance journalist and video producer living in Berlin, Germany. When he’s not writing , he travels many countries.