You just scroll down the pages when you see the word finance or management. You are not a business school graduate, why would you care? But when it says the word personal, That means it can be something related to you or any person. Now, what is personal financial management, and how is it related to you?
We all have insecurities when it comes to using our own money. No matter the amount we have in our hands, we are not sure what will be the best way to use it. And we wish to have a financial advisor, Who will guide us to make decisions without judging!
The term Personal Finance management is all about guiding you through making decisions. So that you can manage your financial situation. Which allows you to live your life without overthinking.
Areas That Cover Personal Finance
The amount you earn monthly is the income source of yours. Your savings, investments, budget, spendings everything depends on the earning amount. It can be any source from where you earn a specific amount monthly or daily.
Every sort of thing you buy with the money is your spendings. A person spends money on his priority. Your utility bills, rents, shopping, medical expenses, taxes, etc are spendings.
The way a country, an organization, a family requires a monthly or yearly budget, a person needs to have one too. It’s a plan to spend the money you’ll be earning. A budget plan will tell if you have sufficient money to complete a task, where you are spending more, how can you save a little amount, and how much you need to pay the debt. In this way, budgeting will ensure you never face any financial crisis.
For a safe future, a person needs to work in the present and ensure security. We are talking about financial security here.No one knows about the next few days. That’s why people save an amount of money for unpredictable situations. To handle any sudden medical issue, unemployment, National crisis you need to secure an amount. Health insurance, Life insurance, are a better idea to secure a certain amount of money.
Suppose you bought a car so that you can reach your office in time. After 1 month you are getting a bonus for being a consistent employer! Here, that car is an investment in your career. Now talking about financial investment, where you are spending money to get more money than you already invested. Such as fixed deposits, investing in the stock market, etc.
This is a vital part of personal finance. Where you are pulling the reins of your expenses. If you plan a budget, you will know which spendings are unnecessary and how much you need to save for the future. Generally, people save their money in a savings account or keep cash on lockers. Some people make gold bars out of money to store that money for years.
Why is Personal Financial Management Important?
Personal finance is all around us but sometimes we ignore it. It’s because Often we don’t understand the importance of a matter until we are into it. Here are some facts that reveal why personal finance management is important for everyone.
An Essential Skill
Ever felt that after a huge black Friday sale you are broke, and it’s just the starting of the month? Trust us everyone went through this! The educational institute never taught us what personal finance management is. This is why we are unaware of planning before spending. This skill can organize your life, which will help you in the long run.
Monitoring Net Worth
When you open a savings account in a bank, you’re supposed to save money there and spend via cash or card anytime. Every time you withdraw or deposit an amount, you get a message on your phone. Do you expect any call from the accountant of yours to say “you are spending more this month!”.
No, right? Because this is not their responsibility to be your financial advisor. When you’ll start managing your personal finance, you can monitor the net worth of yours. That is the difference between what you own and what you owe.
Managing Debt Strategically
How much we try not to take loans from any organization or person, we end up asking for it. You may feel I will pay off that any day. But no one knows about your financial stability, even if you don’t. When you take a loan from the bank you are supposed to pay a certain amount every month with the interest. Research says,
‘77 million Americans, or 35 percent of adults with a credit file, have a report of debt in collections.’
When they feel the need for money and purchase anything with the card without worrying about how they’re gonna pay it, they never think about the consequences. But if you start managing your finances you can analyze and make decisions when you are capable of taking out a loan because you have a plan for how you’re going to pay the debt.
Planning a Budget
To take control of your life, budgeting is important. It is a personal development plan you make for a better present and future. For example – When the very beginning of your month if you make the budget and set a goal to meet it, you do not need to worry about the continuous pressure in your mind to pay the debt. without the plan, you might end up spending bigger than your income.
Protect The Future in Crisis
When an unpredictable crisis hits, you must stand out and handle the situation. To handle any crisis backups needed. Insurance can be your backup to tackle those situations. Health, car, life insurance seems pricey to many of us. But when you meet an accident there might not be anyone to help you with your career and current health situation.
But Insurance can help you here. If you are someone who is struggling with a career and can’t make an amount for insurance, you can find a job where insurance is included. While managing your personal finance you can plan proper insurance that goes with your budget and current situation.
Helps to Modify Your Lifestyle
To reduce huge expenses, people these days switch their life to minimalism. Where people purchase only the ultimate necessity and declutter every sort of luxury of life. This a type of lifestyle people embrace. It depends on your choice of how you want to live. Personal finance management can track your expenditure and modify your life.
Savings to Control Spendings
Remember Rebecca from the movie Confessions of a shopaholic? Rebecca was unaware of impulsive buying and personal budget. To get control over your spending, saving is the ultimate key. When you start planning to save and stick to your decision you know you’re gonna cut those extra activities.
Planning can be how much you’re gonna spend on groceries, luxury items, online shopping, after paying off rents, bills, and debts. In this way, you will know how much money will be left for savings. And you can save that money. And whenever you need to purchase anything you already have a specific amount for that. After all, we love the sound when we shake the piggy bank!
Assist You to Set Priorities
While managing personal finance, it demands a priority check. Suppose you are a chef, you went to a musical festival and ended up buying a ukulele from that festival. Without knowing how to play it, you’re just manipulated to make a purchase. According to your passion and profession, you can set your priorities. So, you can figure out what you want to do with your money and your life.
How Can You Get Better at Personal Finance Management?
You feel the importance of personal finance management, but you are not sure how to start it. This is all about making a decision when you are deciding to start. There are many processes to manage personal finance.
- You can enroll in courses online to learn about personal finance management here.
- Software is a great friend of yours if you are a busy person.
- You can find pieces of information from blogs.
- Movies sometimes portray real-life issues and how to solve them.
Financial Management for Everyone
I hope this article answers all your questions. Now you know what is personal financial management and the importance of it for every single person out there. It will be better if we start this practice at an early age. If you do not have any income source, this article is also for you. From managing cents one day you’ll be able to manage billions. Moreover, Skills are beneficial to improve your persona as well as the quality of your resume.