What if there was a shortcut to handle money? We all would love to get the knack of it and would never get stressed with finances. Do you have the feeling the money just slips out of hand and there’s no room for savings? Then, all you need to do is scrutinize your financial records and know how to spend your money. Remember that it’s never too late to start especially when it comes to giving a new shape to your personal finance management. There are 5 important steps that will be able to help you with handling finance in a better way and become a pro with personal finance management.
If you feel you’re not able to manage your money, then it’s time to change the way you handle your finances. We share with you 5 essential steps that embark on analyzing your weak areas and shows how to improve in those areas for better personal finance management.
5 steps towards your personal finance management:
Step 1. Get rid of your debts as soon as you can
Debts should be the last thing you would want to have especially when you’re struggling with financial management. As it can ruin every plan of yours, it’s essential to get rid of your debts as soon as possible. Debts can add up in a single day but get rid of them might take years. The following steps would help you to make a debt management plan:
• List down the debts based on the amount and interest rates
• Start making payments towards the ones with higher interest rates and eliminate them soon
• Make minimum payments towards the rest and follow the same hierarchy
• Sell your unused stuff to pay for the debts
• A second job would also help to clear off debts soon
• Never fall into a new debt until you clear off the old ones
Step 2. Create financial goals to save for
Financial goals would keep you focused on your personal finance management and motivate you to save for something that you love or need. Your financial goal can be anything be it getting rid of debts, buying a home, a vacation etc. The next thing you would want to know is how to create financial goals.
How to create financial goals:
• List down the things you would want to do in life and spend your money on. Categorize it as a short-term or long-term goal.
• Prioritize each goal and fix an amount for it along with a timeline
• Start saving money based on the priorities
• For goals like saving for retirement, which is a long-term goal, you can get the benefits from your employer with IRA and 401(k) accounts.
Step 3. Know your weak areas and plan to reach your goals
Once you have your list of financial goals ready, the next step is to plan on how to reach the goals. Your financial plan should help you with saving money, getting out of debts and have a workable budget. It is very important to be steady and regular with the plan. You can see the results only when you follow it regularly.
The planning phase:
• The planning phase begins with analyzing your weak areas. Track down every expense you make to know where your money goes at the end of the month.
• Once you have the expense report ready, make a budget
• Now, look for ways to free up some cash and pay off the debts
• Meanwhile, start contributing towards the essentials such as emergency fund, retirement account etc. irrespective of the state of the financial plan
• Start investing money based on the risk you can afford to double up your savings
Step 4. Create a budget and stick to it
The personal financial management plan would work only when you’ve workable budget and you stick to it no matter what. A budget would help you to spend and save money effectively. You can even use budgeting apps to track your expenses and cut down on unnecessary spending.
Step 5. If in doubt, ask someone
When you’re all done with clearing debts and left with money to invest, then consult a financial advisor. You can even check with someone you know and trust, who deals with the same profession to guide you on investment options and financial management knacks as well. It’s good to ask someone and get guidance on the things that you don’t know or new to it.
No one is born perfect and same is the case with personal finance management. Every small mistake you do would surely teach you something. It is very important to channelize your focus on the way you handle every single dollar. Follow the 5 steps mentioned above and you will be able to see the difference in the way you handle your finances.