If someone offered a free crash course to people, I reckon most would choose managing personal finance! A vast majority of people today are plagued with problems related to managing their expenses, and there is no wonder why most of us carry high debts.
Many people lament the fact that when they were growing up, they were never taught how to manage personal finance. Many rue that while a lot of stress was put on earning a degree to earn a paycheck, no education was imparted on how to go about managing the earnings. However, as they say, it is never too late to go about doing things in the right way. With the easy tips mentioned below, you will be able to manage your personal finances in a better way.
1. Track your Expenses
Sounds boring to write down every penny you spend in a day, doesn’t it? However, it is a really good way of getting an idea about your spending habits in a better way. Most of us think a lot about making big purchase decisions, but a $5 here and a $10 there doesn’t seem to bother us too much. However, if you make an attempt to save those $10 everyday, by the end of the year, you will have a good $3,650 to spend on something you like. Better, you can use this amount for investment purposes.
2.Develop a Budget
Budgeting will help you in efficient allocation of money to different areas. Some items such as mortgage/rent payments, utility bills, groceries, etc. are expenditures that you have to take care of every month. What you manage to save and invest from the rest of your income plays an important role in your financial planning. A budget gives you control over your money and serves as a reference for your financial statements.
3. Start a Rainy Day Fund
Emergencies are a part of life; therefore, it is prudent that we brace ourselves both mentally and financially to deal with these situations. Keeping a fixed sum of money aside for a rainy day fund can really help you in times of financial crisis. Rather than looking around for a loan at the time of emergency, have a savings fund that is easily accessible to you or one of your family members.
4. Invest Systematically
Saving for a rainy day fund will help you in times of an emergency. However, it will not suffice for managing your responsibilities. To buy a house or car, or to fund your children’s education, or to host of life’s myriad responsibilities, you need to plan your finances in a systematic way. The interest offered by a savings account is easily eroded by the high levels of inflation. Ten or twenty years down the line, your savings might lose some of their value. Therefore, it is important that you invest in those avenues which have a track record of beating the effect of inflation. The stock market has proven that if you are in it for long-term, the rewards can be pretty satisfying. Mutual funds have emerged as a great avenue for those who do not have the time to pick up individual stocks. Gold bullions, gold stocks, and exchange-traded funds can also be a good investment considering the tumultuous economic climate. Do the required research before investing, and pick out the best ways in which you can let your money grow.
5. Avoid Debts
Avoid debts – some might think it is easier said than done. But however clichéd it might sound, piling up debt after debt only leads to a financial quagmire from which extraction is difficult. Credit cards contribute most in building up a debt, so it is important that you use them judiciously. Some people might advise you to stop using credit cards completely, but following their advice might harm your credit score. Credit rating agencies compile your credit scores on how you manage your credit, and interestingly, good use of credit cards is an important factor for them. Therefore, use your credit card once in a while and always pay up in full. Avoid having too many credit cards as they only increase the possibility of impulsive spending.
These were few tips on managing your finances. We hope this article is useful for you.