You may think you're too young to manage your finances, or too rich to keep track of your budget. Your reasons may be excusable, but only for the short term. When the time comes that you need to plan your finances, it might be too late as you've lost all your money.
Whatever stage you're in right now, you must have an excellent plan for personal finance management. This is essentially how you manage and plan your investments, savings, expenses, income generation, and other personal financial activities. When implemented, you'd have made a financial plan or budget that summarizes how you manage your money.
You may be wondering why personal finance management matters. For the following reasons, good personal finance management is vital:
1. You Can Understand Your Money Better
Your basic knowledge about money may be that it's a tool you use to spend on things you need and want. Of course, that's true. But knowing the real value of your money and how it works comes with more than just the basics. Upgrading your financial literacy by reading financial management blogs, such as those on Money Task Force, can help you have a deeper understanding of your finances.
If you want to understand your money fully, it’s important to be financially literate, as well as have a good personal finance management plan in place. As a result, you’ll know how to control your money and not the other way around. Most people encounter personal issues and even experience turmoil all because they allowed their money to take over their decisions.
With personal finance management, you'll be aware of your financial situation. You'll understand whether your sources of income can sustain your lifestyle. Most importantly, you can choose the best investments that can double your money. Through this, you'll also see if you'll need more sources of income. Thus, you can fully control how your money works.
2. You Can Properly Organize Your Spendings and Savings
As mentioned, your knowledge of money might only be limited to knowing how to spend it on bills and other monthly expenses, such as your debt or mortgage. However, with proper personal finance management, you'll learn to properly keep track of your expenses.
As a result, you'll know where your money goes. If these don’t go to essentials, then you can cut them out of your budget, then put the extra money into your savings.
Keep in mind that proper personal finance management prioritizes savings over expenses. For instance, before you spend your money, you must set aside a portion for your savings fund. Then, you can use the ones left for your expenditures.
If you find it hard to follow the formula of saving, then you can do these to organize your finances:
Create Two Bank Accounts - If you're in a stage where you have such a huge excess of money you receive your paycheck, secure two bank accounts. Keep the other one at home or in a safe if need be before going out at night. One card will serve as a safe for your savings and monthly bills, while the other is what you'll use for personal expenses.
Use Financial Apps - To easily keep track of your expenses, download financial apps. This way, you'll know whether your expenses are over the limit.
Make A Checklist - Use your calendar, post-its, or desk to display your bills. You should make a list of the bills you'll pay for the month so you'll manage your budget according to your expenses.
3. You Can Establish Clear Financial Goals
If you're on a mission to become financially free, it should be your priority to set a financial goal. When you’re knowledgeable about personal finance management, you'll be able to tell whether your goals are realistic.
Depending on your financial goals, good personal finance management can help you come up with the best strategy to achieve your goal. For instance, if your goal is to limit your expenses and save more money, then keeping track of your daily expenditures is one way to achieve this.
Through personal finance management, you can set your financial goals by following these steps:
Assess Your Priorities: You can figure out what matters most when you list down everything and weigh what's more important. For instance, if your goal is to be debt-free in a year, you must allot more budget in paying off your debts instead of investing in any business or luxury items. You can also prioritize your short-term goals instead of your long-term ones.
Line Them Up: Organize your long-term and short-term goals by using a table or a format in which your goals are numbered starting from one that has the shortest timeline. Prioritizing your goals can vary according to the length of time you want to achieve them.
Be SMART: Set your goals to be Specific, Measurable, Achievable, Relevant, and Timely. By doing this, you'll avoid setting an unreachable goal that may distress you if not attained.
Check Your Budget: When you know how much you earn and spend, you'll get an idea of how much you can set as your goal. Moreover, your budget will help you see if your earnings are enough to meet your goals.
Monitor Your Progress: You'll never know if you're near or far away from your goal if you don't keep tabs on your finances. Thus, financial management helps check what stage you are in reaching your goals.
4. Create Money Machines
One of the best benefits of financial management is that it awakens your desire to earn more. Whether taking up a new job, changing a career, or putting up a business, you'll be fueled to think of ways to keep your earnings higher than your expenses.
As personal finance management can widen your financial literacy, you’ll be able to discover that you can earn more instead of simply waiting for your paycheck. Financial planning can teach you how to manage your money, which can be advantageous when you’re thinking to open up a business. Your knowledge in personal finance management can be applied in any aspect of your life, as with your business.
In addition, you'll learn how to invest your money correctly, giving you more returns instead of letting your money sleep in your bank account.
Many people want financial freedom, but they lack knowledge of how to do it. Some think that working on more jobs can let them save more money. However, even the highest-paid employees can be buried in debt. The main reason behind this is their inability to manage their finances.
When you start managing your finances, you'll have a better perspective of where and how you’re spending your money. This can help you keep within your budget, and even increase your savings. With good personal finance management, you'll also learn to control your money so you can achieve your financial goals. Through this, you’ll be more financial-savvy and have more than one source of income.