Managing your personal finances can be hard work, especially when something always comes up that needs to be paid yesterday.
Are you familiar with the main pillars of personal finance management? You’ll find it difficult to utilise your financial resources appropriately unless you perform strategic financial management.
The concept of personal finance management stands on three main pillars. Let’s discuss the main components of personal finance management that you need to take care of:
The main factors you need to focus on while managing your personal finance
Your income and resources
First of all, you need to track all your earning sources to figure out your complete earnings. It will be easier if your monthly earnings come from a single source. However, if your earnings come from multiple sources, it’s important to include them all when adding up the total figure. As you do that, the next step is to measure your monthly expenditures. Once you figure out your overall earning amount and your expenditures, you’ll be able to figure out the gap between your expenses and your income.
If your expenses exceed your income, you need to cut down expenses by creating a lifestyle budget. In such a budget, you should include all the expenses that you incur when living your regular lifestyle. That’s how you’re able to create a balance between your income and your expenditures, allowing you to handle your cash flow.
Financial stability
Your savings and investment plans are the representative factors that equate to your financial stability. Earning money and then spending all your resources each month does not make you financially strong and stable. You earn financial stability by investing money in insurances and investment plans. No matter whether you’re investing your resources in mutual funds or buying term insurances for yourself, you need to make sure you’re utilising your resources efficiently. You are supposed to invest your savings wisely to maximise your financial strength.
When you invest in mutual funds or other investment options, strategic planning should be your weapon to earn maximum profits from your investments and ventures. Long-term investment plans turn out to be extremely beneficial in terms of your retirement plans as well. So, you should focus on acquiring financial stability after you’ve figured out your earning potentials and expenses. Once you complete balancing your earnings, expenses, savings, and investments, you have a short path to go to complete personal finance management.
Gathering emergency funds
Lastly, and most importantly, an emergency fund is an essential part of a healthy financial management plan. If you were to lose your job or your car were to break down, you would need access to money that can be readily converted to cash (liquid assets). Money tied up in property for example would unfortunately take too long to access, when sudden and unexpected expenses occur. According to Cent Account brokers it is best to put aside six to nine months of expenses. If rent/mortgage and bills add up to £1500 a month, that would equal £9000 – £13,000 needed in liquid savings. Only then should you think of using any excess funds to invest in areas such as forex.