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Managing personal finances can be challenging for many. Just thinking about all the computations and number crunching is enough to make their heads hurt and give up on planning for their finances. But this is an important thing that everyone should do as this would impact not only your current situation, but your future and the future of your family.
It’s not that difficult to manage your finances if you commit yourself in doing so. Furthermore, you would thank yourself 5, 10, 20 years after for acting on this matter now. You may encounter some challenges at start, but like any other things that you are trying to learn, it will all be better when you get used to it. Once it becomes part of your lifestyle, you would not need to check this guide or watch a financial TV program, as you would do it by heart.
Set specific financial goals that you would like to achieve in the future and write them down. Be detailed with your plans so you can push yourself in achieving it. For instance, instead of saying that you would like to save enough money when you get old, you may write that you would like to have a savings of $200,000 when you reach 50. This will motivate you to reach that specific goal.
Proper budgeting is a great way to manage your finances. This could avoid financial constraints that you may face if spending without a budget set. It could be that you are already spending more than you should, which could hurt your finances.
How do you set a budget? Write down your expenses and place how much you would like to spend on each. For example, you may include electric bill, water bill, food, rent, credit, etc. and next to them is their target budget. Be realistic though, as you don’t want it to be too low that it would become uncomfortable on your part.
Jotting down your target budget is just half of the job. You must track your expenses for at least a couple of months and see how much you are really spending on each of the items on your expenses. After two months, you should have a clearer picture on how you really spend.
Compare your budget with your spending habit. Are you meeting your goal or are you spending over your targeted budget? Make a conscious effort to adjust your spendings to meet your budget. One way is to lower the amount that you spend on less important matters so you can increase the amount in other areas that you need most.
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Unexpected things may happen anytime and it could be very tough if you don’t have money saved for emergency situations. This is what often lead to towering loans and credits. Most financial programs and experts recommend to at least save 10% of your income. But this may not apply to everyone, especially when there is barely anything left in the budget out of the expenses. If it is not realistic to stick with the 10% savings, save the highest amount that you can for your budget.
This is important to avoid penalties on late payments. You may set up automatic payments, create alerts to notify you of payments, or if you have the money, pay as soon as you get the bills.
Like late payment of bills, the interest on your debts or credits would increase if you do not pay them on time. Furthermore, this could affect your credit score, making it difficult for you to secure financial assistance in the future.
Unfortunately, not everyone lives by this principle. Your lifestyle should fit your income. If you spend beyond your means, you could be in huge trouble.
Your partner should also be part of it. If you commit yourself to changing your lifestyle to manage your finances better, but your partner does not do his part, it may not be successful. After all, it’s the family budget that you are working with.
If you have kids, let them know about your plans and your budget so they too could do their part. This is also a good training for them. If they learn the importance of financial management while they are still young, it would become natural for them as they grow up.
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If you have excess money for this, then go for it. You may invest in a vehicle, house or a good business that would generate extra income.
Do not be overwhelmed with these tips. Take it one step at a time. Remember, those baby steps could get you there. If there are tips that you would like to share with us on how to improve financial management, we would love to hear them!