The management of personal finances is something each of us does on a regular basis, and yet it is a skill that isn’t taught in schools and we mostly pick up on our own, usually as freshmen newly in charge of all our major expenses. With this in mind, is it surprising that many people are struggling to take control of their personal finances? It seems like we just have to make certain purchases, afford certain things, splurge on this and that, and before we know it we find ourselves in a lot of debt and without any savings at all. If you want to break out of this cycle then the first thing to do is to learn about personal financial management. This article will introduce you to the basics – why it is so important, what the main principles are, and what kind of tools you have at your disposal to help you manage money better.
Personal financial management is all about keeping track of your financial obligations and planning your expenses in advance before they occur. The purpose is for you to not just be in charge, but also be fully aware of how much you are spending and what you are spending on. For example, if you were asked right now how much you spend on food per week, you would probably be able to give a rough estimate. But if you actually carry out the calculation, you will probably be surprised by the result. Most people’s rough estimates underestimate actual expenses, not just on food but on most other things too. And the miscalculations add up, resulting in considerable amounts of credit card debt. This kind of debt could have easily been avoided by better planning and an emergency fund, but once it piles up it is much more difficult to deal with. For one, interest rate payments are a totally unnecessary drain on your income.
Personal Financial Management and Budgeting
With budgeting, a key tool for personal financial management, you have a much better overview of your financial situation at the beginning and at the end of the month. Most budgeting tools track both budgeted and actual income, expenses, savings and investments. Thus, it quickly becomes apparent whether you are overspending and on what. More than that, budgeting will make you realize that every dollar you spend is significant. Naturally, you will start thinking that if you decreased your spending in certain categories by a just a tiny bit, the savings would be considerable. When you have a bird’s eye of view of the situation, you are much more likely to actually make small cuts wherever possible and get the most bang out of your hard-earned bucks. Just by putting in some effort to make a reasonable budget and stick to it, you will be spending money more efficiently and eliminate a lot of stress from your life – when you’re operating on a budget, you are much less likely to dread paying the bills each month.
The best thing is that when it comes to personal financial management you don’t have to start from scratch. Personal financial management tools are becoming more and more available every year. They come in a variety of forms, including computer software, mobile apps, Excel spreadsheets, printable budget calculators, online calculators, and so on. The basic types of tools are simple to use and allow you to track planned and actual expenses and savings.
More advanced versions offer other features as well – they allow you to connect bank cards to the software in order to have every transaction appear in your budget automatically. Also, a lot of them provide graphs and charts tracking your net worth and budget compliance. Many also provide saving money tips for all kinds of expenses. Prices vary, but the vast majority are certainly affordable, and many such tools are free to download and use.
In addition to budgeting tools, there are other specialized tools that help with personal financial management in terms of savings and investments. Many of these are intended to simplify the investment process by saving you time and providing you with expert advice for a fraction of the cost. For a monthly subscription fee, they will give you recommendations on how to adjust your holdings in ETFs and other funds and some tools will even perform the transactions for you as well.
Thus, today we have a wide variety of personal financial management tools that do not require you to be a financial expert to use. In fact, they are developed in such a way that everyone can understand and use them. Using these tools consistently will make it much easier to take control of your spending, increase your savings, and optimize on investments. So browse your options, read the reviews, and pick the tools that best fit your lifestyle and your financial goals.