Personal finance management refers to the efficient and effective management of your money or funds. The purpose of personal financial management is to plan, organize, direct and control your financial activities in such a way that you manage your income proactively rather than reactively.
It allows you to accomplish monthly tasks such as regular bills payments; loan EMI payments, policy premium payments, utility payments like electricity bill, water bill, food, rent, shopping, grocery etc. without stretching your monthly budget.
Many of us struggle when it comes to managing finance. Finance is integral to our lives because it determines our standard of living; it allows us to stay independent. The better we manage our finances, the more we can spend on ourselves for a summer trip abroad or on a luxurious sedan or to get married in style.
Financial management encompasses budgetary control, saving strategies, debt management and financial goal creation. All of us want to improve our finances to stay out of debts. Financial management gives us insight to take better decisions with regards to investment choices.
How much from the monthly income to allot towards investments, how much to put into an emergency fund are some questions answered through financial management.
Objectives of Personal Finance Management
- Consistency – Personal finance management ensures you are consistent and on track to meet your monthly budget. Ensures you stay within your credit card limit and not stretch your monthly income.
- Accountability – Personal finance management allows us to keep track of our expenses and look at the spending pattern to cut down on unwanted spends. Keeping track of bills, receipts and statements help in better tracking of expenses
- Forecasting – You can focus on short term or long term goals. Retirement planning although not on your mind for now can soon become your priority with the help of personal finance management.
Let us look at some finance management tips that can help you manage your finances better and stay prompt with your monthly payments.
- Set financial goals
Set realistic goals. A short term goal would be ideal for completion by the next 5 years. The goal should also be measurable. Outline the goals and put them up in clear view on your refrigerator or mark them on your calendar.
- Build a budget
A better way to control your finances is by creating a precise budget and sticking to it. A well planned budget will help you achieve your financial goals. Your budget should include all your expenses – big or small. Tweak your budget according to the rise in your income. Revisit your budget every 6 months at least. Although it can be difficult, especially if you have spending habits ingrained, a budget should be your priority to make your personal financial management work.
- Invest wisely
Start investing so that one day you can have an added source of income. Digital lending is a good way to use the money you have safely locked away in your bank account. Do so now. Start investing at a younger age and embrace the risks involved. With a balanced outlook towards risk and returns, your financial management can help you build a solid financial foundation.
- Create a savings plan
If you are living from paycheck to paycheck then it is tough to save enough. Although difficult, you can save on a weekly or monthly basis. Start by setting easy targets for each month.
- Rainy day funds
Personal finance management helps you keep an emergency fund in place. When you live on a tight budget, it gives you a cushion to save for unexpected expenses. Sudden home repairs, car breakdown and medical bills are part of our life. Another option to handle emergencies is personal loans. An emergency fund gives you breathing space should a calamity strike. It will prevent you from maxing out your credit card limit and inviting unwanted debt.
- Review your bills and statements
Most of us pay off the minimum amount due on credit cards and move on. Look for errors if any. If you have missed any payments then look at the statement for the charges levied. You can also determine how much money you have been spending on unwanted products or merchandise. Then cut down on them and make a plan to ensure that you do not miss any card payments in the future.
- Track your expenses
Expense tracking is a habit that will ensure you keep track of daily, weekly or monthly expenses so that you do not shoot your financial budget. Keep track of your bank account balance, store all your bills, ATM receipts, invoices etc. so that you can match these values with your expense tracker. The tracker can be a spreadsheet or a diary. Categorize the expense with type, date and purpose. You will get to know how much you spent last week in restaurants or how much fuel goes into your motorcycle each week etc.
- Prioritize debt payments
Ensure you are extremely prompt while clearing credit card bill statement, loan EMIs and other credit related payments. With all these payments getting registered with credit bureaus, it is important that you pay off debt payments to prevent a negative credit history and a fall in your credit bureau score.