Managing Personal Finance |
By Arthur McCall on March 31, 2010
.jpg.aspx) In order to manage your personal finance, you must first determine what finances you have available. This seems simple, but without creating a budget for yourself, it is easy to fail to see the big picture. In order to create a budget, record all of your purchases for your chosen time period (year, month, week, etc.) and classify them as groups. The purpose of doing this is to determine in which areas you are possibly overspending. Once you have determined which purchases you can’t do without, you have also determined which areas are luxury spending. When looking at the budget, you must make sure that your spending does not exceed your income; this type of living is unsustainable. If it does exceed your income, the luxury spending should be sacrificed in order to keep you from accumulating debt.
Following the creation of a sustainable budget, you should take care of any existing debt, such as credit card debt. Because debt accrues interest and often penalties, debt will often lead to more debt. If you do have debt, each period you should set aside a certain amount of your luxury funds for paying this debt off. If you have taken care of your debt, it is time to think about your savings. If your employer offers incentives to contribute to a 401k plan, you should take advantage of this because it will benefit you in the long run. However, it is a good idea to accumulate some readily available savings to better prepare for the unexpected. A good rule of thumb when saving is to set aside a portion of your earnings, say 10%, in the budget for your savings account before you ever consider spending it alongside your luxury funds. If you follow this procedure, before long you will have a solid base to fall back on in the event of a financial emergency.
Once you are able to sustain yourself and save, the next step is to obtain investments and insurance. However, the basic key to managing your personal finances is to save rather than accumulate debt, and to create a budget that you can use to measure your progress.
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