Personal finance means managing financial or monetary resources by an individual for spending,saving and investing for short term and long term goals of life. Personal financing is managing finances to manage risks and utilize opportunity to maintain survival and growth of wealth or financial position of an individual. This includes insurance, budgeting, mortgages,debt servicing,retirement plan etc.
We need to utilize financial management tools to maintain and expand routine of life. Personal financing methods vary depending upon situation faced by any individual. Well, Students go for personal finance methods to manage finance for higher degrees, sole proprietors need it to enhance the business operation and increase income by investing more.
Personal financial management is a subject that is not taught in various schools; however is something that nearly everyone has to deal with in their lives later on. Personal financing relates with decisions of economical buying, saving your income, budgeting your finance to meet future need. When is appropriate to buy or hire, when is appropriate to save or spend.
In order to protect you from state of “out of pocket” , plan your all financial activities,watch them and rebuild them to reduce over spending and maximize saving and investment. Make outflows when only necessary keep inflows without requirement, this strategy will never makes you at trouble when emergency may require big amount to spend suddenly.Financial backups help you to avoid going for heavy interest cost loan.
If you cannot sacrifice today, you have to compromise tomorrow.
Some traditional procedures to manage personal finances are:
Keep record of Monthly consumptions:
Whatever you spend during a month, keep a diary record of it. Analyze the spending and list them important and non-important. Keep watch on prices rise and make your mind to maintain some buffer income at each month end. Whether you keep it in saving account, buy a bond or make short-term investment.
Prepare Monthly Budget:
As per last month`s spending, make a budget at the start of each month stating all of your expenses and your income. Avoid unnecessary social activity, hangouts and parties that cost u a lot and at month end you left with zero or some time negative balance.
Compare with the actual outflow
At the month end, compare the standard consumption with the actual consumptions. Control the adverse variance and take favorable variance as your goal in all type of consumptions.
Utilize your Energy and Time in a best possible way
Try to make your every hour a source of earning, if you are a student, look for free hours, and engage them in some part time work. If you a full time employee see how you can manage your off the work time to gain additional benefit. Take care of your health, as this can become a regular and unavoidable cost.
Keep saving or investing
Whether required or not, keep a percentage of your income as saving every month. Wise people set their saving target and then plan their spending accordingly.Always look for market opportunities, which can make regular profits and earning coming your way.
As per the amount and time available for consumption, go for short term and long term investments.
These are Investments in marketable securities,Treasury Bill,Savings Bond,mutual funds,property purchases meant for short-term resale.
They may include stocks, bonds, real estate and cash.Purpose of long-term investments is usually retirement plan of individual or generating handsome profits in a sustainable way.
Finally, long-term investments account differs largely from the short-term investments account in that the short-term investments will most likely be sold, whereas the long-term investments may never be sold.