The hunger for information on how well to manage one’s finances seems to grow by each day. This hunger has been brought about by the cost of living that keeps escalating, availability of cheap credit and the desire to have extra cash to save for the retirement.
In this article, we decided to open your eyes by giving you personal financial management tips. Kindly note that list is not necessarily in the order of importance.
Setting a Budget
This is the most important step that any person who wants to achieve something in should consider. A personal budget has been defined as a plan that guides a person in allocating income to expenses, repayment of debt and savings. The budget is prepared based on the past spending habits.
Creation of Financial Calendars
In life, there are various obligations that we are supposed to settle. If forgotten, we may be subjected to fines and penalties or outrightly interfere with our cash flows. A financial calendar will help us know when the various obligations fall due and the appointments that we need to honor.
Tracking One’s Net Worth
Net worth represents the difference between the assets that a person owns and the debt that he has accumulated. When you track your net worth, you can know whether you are marching towards your financial independence or your pull away. Ideally, the gap between the assets and debt should be as wide as possible. Endeavor to widen it.
Income streams will increase the net worth while expenses will eat into your net worth. At any given time, you should spend less than what you have earned to increase your net worth.
Setting Financial Goals that are Specific
Avoid using words to describe things that need to be accomplished. Instead, put numbers and figures to the words. In so doing, you can state clearly, for example, how much will go towards home ownership, debt repayment, holiday, etc. The timelines for achievement of these goals should be clearly defined.
Checking Your Rate of Interest
It is essential to track and monitor your interest rate continuously. Priority should be given to those loans that have a higher rate of interest. This is because, mathematically, interest rates are normally charged on reducing balance, and as such, a high loan balance and an equally high-interest rate will hurt your cash flows big time.
Effective Debt Management
Research has shown that whenever you have many debts, start by paying the smaller ones to gain confidence to pay off the larger ones. Start with credit cards and then move onto other loans and finally the mortgage. It’s all about the psyche.
In conclusion, personal financial management tips mentioned above are not casting stones but rather a guide on which other positives habits can be built from.