Personal finance relates to all aspects of managing personal and family finances that ensure better control of funds to meet current and future personal and family needs. The aspects of managing finance include planning, raising, saving, spending, investing and securing income. You should, therefore, have a plan or guide to help in managing the above aspects of your personal finance
The environment of a positive mindset
Managing personal finance thrives better with a person who has a positive mindset towards money. You should, therefore, be open, motivated, willing to take some degree of risk, innovative and willing to face and overcome challenges. A person with a positive attitude will always tend to search for solutions or opportunities to overcome financial challenges. To a positive mindset person, all challenges can be overcome and will with all determination search for solutions. The positive mindset state will also help you in enhancing the skills referred to below that are necessary for managing personal finance.
It is true that you can manage your personal finance but you must have the capacity or competence to do so. Your competence will be enhanced as you get exposed to the different aspects of personal finance. It is important for you to develop a skill enhancement plan that will guide you during your lifetime. The purpose of this article is to highlight the following key skills that you may require in order to effective management of your personal finance;
- Understanding your current financial status;
- Importance of managing personal finance;
- Saving and investing;
- Securing personal finance;
- Borrowing and
- Review of progress reports
Understanding your current financial status
It is important to have a clear understanding of your current financial status including appreciating your strengths, weakness, opportunities and threats as a starting point. Appreciating your current financial status will help in developing and executing a plan that will move you from your current financial status to your desired financial status.
Importance of managing personal finance
It is important to appreciate the role that finance plays during your life journey. Proper management of personal finance gives you the freedom to do what you have planned to do because funds will be available when you need them. The practice gives power and control over finance during your journey to your desired destination. In addition, proper management of finance gives you the security to move forward because you have the capacity to acquire the required resources or services during your journey in life.
A budget is a tool or means you can use to keep yourself informed of when and how you earn or spend your money.
The budget will indicate the planned sources of income and planned expenditure for a given period. The budgeting practice forces you to prioritize your needs so that they can fit within the level of budgeted income. It makes you appreciate whether you will have enough funds to spend on the planned needs at any given time. It is a tool to help you monitor your actual performance in income and expenditure against budget.
Saving and investing
Savings is the amount of money set aside from your total income for purposes of investing to meet future expenditure needs. There should be adequate controls on your savings so that you cannot easily access them to meet your current needs. The savings should be invested in accordance with your investment plan to earn more income and grow in value. The investment plan should be tailored to your situation, the level of risk you are willing to undertake and your capacity to manage it.
Securing personal finance
You have to take deliberate steps to secure your income from risk of losing it due to bad investing decisions. The following situations among others should be avoided in order to secure your funds;
- Investment not based on professional advice
- Investing into getting quick rich schemes will make you lose money;
- Weak controls over your finances that can result in fraudsters accessing it;
- Investing in non-viable business ventures and
- Investing in volatile instruments or items.
It is important all investments are made following proper advice from qualified, regulated and competent advisors.
It is advisable to live within your means that your expenditure including savings should not exceed your level of income. You should prioritize your needs to the level that makes them fit within your income level. In exceptional cases, you may need to secure a loan or a facility from a bank to meet your current expenditure but this should only be done to address timing differences in your cash flow projections or forecasts. You should avoid getting loans from money lenders who offer quick loans at unfavourable terms. The bottom for accepting any loan is your projected cash flow should be in a position to service your loan obligations.
Review progress reports
As indicated at the beginning of this article you must have the plan to guide you in the management of your personal finance. There is a need therefore at least twice a year to review your financial performance in terms of income, spending, saving and investment to ensure these aspects are in accordance with the plan. The review gives you a chance to early identify challenges for the development of mitigation strategies.
Effective management of your personal finance gives you the security, confidence and ambition to move forward in your life journey without panicking. This is so because your personal finances are under control.