In this post, you will learn the 7 step beginners guide to personal finance management.
If you apply these steps, you will get better at your personal finance management and eventually achieve financial freedom.
7 Steps Beginners Guide To Personal Finance Management
- Create a financial calendar.
- Get on an all cash diet.
- The 20 – 30 rule.
- Try to avoid debt.
- Take money minutes daily.
- Know your monthly income.
- Create a plan and stick to it.
Create a financial calendar
If you can not keep track of your spending or just cannot trust yourself with what you are going to buy next, having a financial calendar is your first step in the right direction.
Planning your whole years Income, expenses, and savings paints a clear picture of where you can see your self in 3 or 5 years.
For example, you know how much rent you are paying, average bills, your average cost of living all of it goes into your financial calendar, once you have planned your year in terms of expenses you can work on the savings part which includes your emergency funds and investments plans.
Contrary to a very common approach saving just a small percentage when you can save more without living on a thin budget is always a great idea.
While people spend their extra dollars on luxuries, having clarity where you will be standing at the end of each financial year, will keep you motivated.
Your investment plans can only be realized when you have a certain amount of cash.
Get on an all cash diet
If you are just beginning to start your independent life but scared of getting buried in debt, consider an ALL cash diet, meaning you should only use cash to buy things the old-fashioned way.
Using cash is a great way to ensure you are not using your credit cards for purchasing essential items which you should be budgeting in the first place.
We know it may sound scary to some people. Not having the liberty of buy things they want whenever they want.
The truth is financial management is more about the needs and less about the wants.
Before you cut and throw away your credit card, practice this instead, every time you leave the house to buy groceries make sure you leave your credit card at home so you don’t end up buying things impulsively which you don’t need at the moment.
The 20 – 30 rule
You are young and energetic, the movies are great this time of year, the restaurant by the corner of the street serves the best Sushi.
But wait. First things first,
The 20-30 rule is a great way of enjoying all the things we mentioned along with the peace of mind that you have an emergency fund established.
The 20-30 rule is more of an exercise. While planning your financial calendar, the 20% of your income goes straight to the emergency fund.
And a hint: A wedding is not an emergency.
Having a leaky roof, or serious health risks should be considered emergencies.
And the 30% should be spent on your life style.
This includes movies, restaurants, happy hours, basically anything that’s apart from your basic necessities.
Now the 30% budget can be revised on the lower side as per your preference and all the cash can be saved for a bigger purpose like a trip you have always wanted or to get a nicer car.
Try to avoid debt
In todays world it is not very unlikely for people to have any debt they have to pay. Student loans, credit card bills, car instalments, phone plan.
Basically, everything you currently own and have to pay at a later date.
Many young people with limited resources of earnings often drown in the whirlpool of debt.
But if you have been following the steps, we have just talked about you will never skip this one.
To understand this concept first you need to understand how you should deal with your debt, the larger payments, or the higher interest rates should be paid first. Its simple math, if you fail to make a payment of bank loan with 10% interest it will boost your payable amount.
Take money minutes daily
By setting aside one minute each day to check on your financial transactions.
This 60-second act helps identify problems immediately, keep track of goal progress—and set your spending tone for the rest of the day!
This simple exercise will also help with long term financial goals.
Quickly reviewing your balance amount and expenses also highlights unnecessary costs that can be easily minimized.
This sixty-second window can be in the morning or at night – whenever you feel you will have the time to carve out a minute or two where you log in to your bank(s) or whatever budgeting software program you use and review your transactions from either the previous day or that day (depending on the time of day you have your money minute will determine what day’s transactions you are reviewing.)
A money minute is important because it allows you to see where your money is actually going.
Keeping track of your expenses is great, so as long as you do it consistently you will never lose track.
During your money minute every day, you can use this time to track only one-day’s transactions making it easier to account for your expenses.
This is also a great time to catch any errors made by your bank (fees, incorrect withdrawals, missing deposits, etc.) and an even better time to catch fraud or identity theft.
Know your monthly income
As the saying goes, “what gets measured, gets managed.” How can you manage your money without knowing what you earn each month? If you don’t have a concrete number, determine your monthly income after taxes.
This will be easier if you’re a salaried employee with a regular paycheck. Freelancers may have to estimate their monthly income.
Once you have a number, add in any extra side gig money.
Maybe you babysit sporadically or have a blog that earns ad revenue, or you teach a weekly fitness class.
Whatever extra income you earn, add it into your monthly take-home pay.
There is another exercise you can use if you are starting to manage your own finances.
Even if you are a freelancer or taking a part time job after school.
Determining a number below of how much you actually make can come in handy while trying to save money.
For instance; if you are making $1500 a month and you spend the most of it away before your next paycheck arrives.
If you follow all the steps we have just discussed, you should have a neat idea of your expenses and living costs.
And you should have some amount to spare as well. While you could just go ahead and consider it extra cash to spend.
Considering your actual pay to be your salary minus the amount you are left with after budgeting.
This can help you with your saving and can create a cash pool that can be invested in the future.
Create a plan and stick to it
Now that you have planned everything money wise, it’s time to keep doing these exercises on daily, monthly or quarterly basis.
Once you pick a plan, give it a try for at least a month. You need that long to see if it works for you. Anything less, and you won’t see the benefit of keeping an eye on your finances.
So, find a budget you want to try, get started and stay with it. It’s that simple. If you want, Washington recommends you “surround yourself with visual representations” of your goals. So, if you’re saving for your next international trip, you can put up pictures of your dream trip to keep your goal fresh in your mind.
So there you go, the 7 tips that you can practice to manage your personal finances.
Remember always think before you spend.
And planning where your money is going will always benefit you in the future.