After completing your education and entering the work-life, you start to understand the importance of money. It is also when you need to learn how to manage your personal finance. Even if you have had some basic training on money management, there are still some things you learn from experience.
This guide will find everything you need to know about managing your finances.
One of the most critical aspects of managing your finances is to create goals. These goals may be short-term or long-term. If you're new to the concept of budgeting, start by creating short-term goals.
Here is a difference between short term and long-term goals:
Short-term goals are more accessible to achieve than a long-term goals. They are set to cover a shorter period of months or a couple of years ahead. On the contrary, long-term goals strive to cover more than 5 years.
For instance, if you have enough money saved in three months to make a big purchase or have backup money for a specific amount. A long-term goal would be to have enough money to cover your retirement days or money to pay for your child's college fee, etc.
Budgeting is the ultimate road map that decides how much money you can spend on your expenses and how much you can save every month. As a rule of thumb, everyone should follow the 50/30/20 rule.
As per this rule, you can spend 50 percent of your paycheck on your essential monthly expenses. These can include rents, groceries, bills, etc. The 30 percent goes on your wants. Your wants are different from your needs; these can include take-outs, home decoration items, fancy clothes, etc.
The remaining 20 percent goes into your savings account. However, if you're still in your 20s and don't have many long-term financial goals, you can save 10 percent and use the extra 10 percent however you want. But it is better to start saving early on, and 20 percent is a good percentage to start with.
At one point or another, we tend to give in to the pressure and apply for loans, even for things that aren't as important. Make sure you only borrow money from others to repay the amount with the added interest. For instance, if you apply for a personal loan, you might get instant loan approval; however, the interest on the amount you owe will be higher. If you can't pay it back in time, it will only accumulate and add to your debt. Please note that payday loans often charge exorbitant interest rates that are difficult to pay back. Make sure you see the pros and cons of payday loans to protect your financial future. You may not want to to a place where you have to file bankruptcy due to payday loan interest rates.
Another essential thing to remember is not taking on multiple loans at once. If you're already under a debt burden, there is no point in adding to the compiling amount. It only serves to make repayment harder for you.
Monthly bills are a recurring cost that you can't cut back on. So, instead of hoarding the pile of bills, pay them off on time. You should pay your bills as soon as you get them. It helps boost your credit score, so if you ever need to apply for a loan, the process won't be a hassle.
Speaking of loans, make sure you prioritize your loans as well. Pay them off before they become a lifetime burden for you. Whether you have a mortgage loan or overdue student loan, try to increase the amount you repay in monthly installments, if possible, to pay off the debt quickly.
You should start investing it somewhere once you have a certain amount of money saved up in your bank account. If you're not too well-versed with the stock exchange market, you can try investing in other options, such as real estate, mutual funds, government bonds, etc.
Keep in mind that investment comes with its fair share of risks, but you can choose an option that has few risks associated with it. This is especially important if you're a beginner.
Money management sounds like an overwhelming task when, in fact, it is a relatively simple process. The only tricky part is when you consider investing your money. You have to be well aware of how the market functions to earn profit. Other than that, all you need to do is create long-term and short-term goals and manage your personal finance accordingly. Try to save at least 20 percent of your paycheck each month. If you can save more, that's even better!