Personal Finance

7 Step Beginners Guide To Personal Finance Management

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.

How To Create Your First Budget.

Personal Finance Wealth Creation

Think Of Money As A Tool

Most people don’t think of money as a tool.

To achieve any form of financial independence or freedom, you must change the way you think of money.

Money as we know it represents a mechanism for exchange and the financially savvy treat it as such.

Throughout history, money has come in different shapes and sizes.

There was a time when salt was used as money and today we use salt as a seasoning for food.

Why Money Should Be Treated Like A Tool

First we must define what a tool is.

Merriam Webster’s definition of money is, “something used in performing an operation”.

Money as a tool helps us in performing tasks which in this case, a medium of exchange.

So if you are in the market to purchase a new home, car etc, in order to accomplish this tasks, you need money.

Money is an idea and unfortunately, most people place too much emphasis on acquiring money.

The wealthy use money as a tool to enhance their lifestyle while the rest of the population chases money due to a lack of financial literacy.

The only way to be financially secure is to increase your value in the marketplace and money will find you.

You must change the way you view money if you intend to elevate your personal finance.

Treat Your Personal Finance Like A Business.

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Treat Your Personal Finance Like A Business

In this present economic climate, it is vital that you treat your personal finance like a business.

So what does a business have in common with you?

First and foremost, a business provides goods and services and in return generates income.

Secondly, in order to provide these goods and services a business incurs expenses.

Third, in order to expand and grow, a business must invest what ever cash is left over at the end of the week, month or year in it’s growth or borrow money for growth.

Treating Your Personal Finance Like A Business

Just like a business, you go to work to earn income in order to survive.

In order to provide for your basic necessities such as housing, food, transportation etc, you have to incur some expenses.

The difference between your income and your expenses is what is left over for investments.

Investing in income producing assets is the key to your personal financial well being and wealth creation.

You must change how you manage your finances in order to position yourself financially.

Steps On How To Be Secure Financially

  • Create a budget and stick to it.
  • Know your numbers, i.e, know your total assets, liabilities and networth.
  • Increase your income.
  • Decrease your expenses.
  • Invest your positive cashflow in income producing assets.
  • Never fall into the lifestyle expense creeps. Basically, because your income increases doesn’t justify over extending yourself.

These steps might seem simple however, it will require a complete paradigm shift in your thinking to pull this off.

These are the same steps I am applying in my journey to growing my wealth and financial independence.

By staying focused, disciplined and committed, you too can learn to treat your personal finance like a business.

The Main Reasons Why You Are Broke.

Think Of Money As A Tool.

How To Create Your First Budget.

Lifestyle Personal Finance Wealth Creation

The Main Reasons Why You Are Broke

In this post, you will find out the main reasons why you are broke and how to turn things around.

We live in one of the most prosperous times in human history with technological advancements and information overload.

However, majority of the population are living paycheck to paycheck and are broke.

If you find yourself in this situation, don’t beat yourself up, because you are part of a vast majority of the population in the same predicament.

Here Are The Main Reasons Why You Are Broke

  • Lack of financial education.
  • Lack of discipline.
  • The pursuit of instant gratification.
  • Having a consumer mindset.
  • Adhering to old paradigms.
  • Trying to impress people.

Lack Of Financial Education

It’s unfortunate that most people lack financial education.

Financial education is not taught in schools and most families don’t invest the time and effort to educate themselves on financial matters.

This is one of the main reasons why you are broke.

Financial education or financial literacy is the bedrock for achieving financial security and freedom.

In order to stop the madness and get on the right track, you must invest your time and enough in educating yourself on everything financial.

From budgeting to investing, you must make a decision starting today to get financially savvy.

Read books on personal finance, do google searches on personal finance, and go on YouTube to search for topics on finance.

This should be your first steps on getting out of your financial situation.

Lack Of Discipline

The next reason why you are broke is due to lack of discipline.

In order to achieve financial security/freedom, you must be disciplined with you finances.

Most of us lack self discipline and as such struggle with our finances and remain broke.

Having discipline means you create a monthly spending plan or budget and stick to it.

You must resist temptation of impulse purchases and marketing tactics from retailers.

By creating and sticking to a budget, you will develop a great habit and stay disciplined with your finances.

The Pursuit Of Instant Gratification

Yes, this is a big one.

We are bombarded today by advertising and marketing messages on the latest products and services.

In addition, social media platforms are now the main source of the distraction and marketing strategies.

Due to the availability of easy credit, it’s very easy to purchase things due to impulse without giving a second thought.

We see the latest shoe, hand bag, smart phone etc, I feel we must have this item now.

If you do not want to stay broke, you must learn to delay gratification.

Having A Consumer Mindset

Having a consumer mindset also ties into pursuing instant gratification.

Most of us are consumers and because of this mindset, we are leveraging credit cards and other debt instruments to fund our lifestyles.

This is another reason why you are broke.

I am not implying that you shouldn’t buy things, however, every purchase you make should be planned.

As soon as you let go of your consumer mindset, you will see purchases differently and make smart decisions with your money.

Adhering To Old Paradigms

Adhering to old paradigms is another reason why you are broke.

Because everyone is in debt doesn’t mean you too should be in debt.

If everyone is jumping off a cliff without a parachute, does that mean you should do the same?

You must change your mindset and think differently when it comes to your finances.

Do not follow the crowd but do things differently.

There is a reason why the wealthy act poor and the middle-class and the poor act rich.

The wealthy have mastered the art of finance and that is why they are wealthy.

They invest their money in income producing assets while the rest of us invest our money in depreciating assets such as cars, boats, etc.

Change your paradigm and you will change your life.

Trying To Impress People

The truth of the matter is that at the end of the day, nobody cares how big your house is, how expensive your car is, how expensive your clothes are, etc.

Most people try to impress their friends and family by over extending themselves with big purchases.

You may fool people with your so called rich lifestyle, but this comes at a price to your finances.

There are cases of individuals earning 6 or 7 figures income but yet live paycheck to paycheck.

It call comes down to living beyond your means and investing in income producing assets.

If you can afford things, then by no means go ahead and purchase them.

Remember that all purchases you make must be planned without having an adverse impact on your finances.

The Road To Financial Freedom.

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The Road to Financial Freedom

The road to financial freedom is there for anyone willing to put in the effort.

Most people have 46 to 49 years of income-producing efforts and more if you plan to work into your “retirement” years.

During that time, we must complete our education or training, get a job or open a business, while meeting the many demands of life.

We have to provide for food and shelter, clothes and transportation, childcare expenses, college tuition, vacations, Christmas presents, insurance premiums, and more.

How is it that some people can retire at age 50 in spite of all this while others will never retire at all.

If you’re just starting out, you are nowhere near your peak earning power.

You might have to buy your first suits or business dresses for your new job.

You also want to enjoy life, go on vacations, buy or lease new cars, and rack up debt.

Here’s How-To Create Your Road To Financial Freedom

There are individuals who have figured out the road to financial freedom.

Here is how they have done this.

First they live within their means and save as much as possible.

Take advantage of all the tax shelters the government allows and if possible, save even more.

Invest in or start a part-time business, rental properties, or learn to increase their returns through smart investing.

Have adequate insurance against potential risks that could ruin them financially.

Use debt wisely as a tool to build wealth.

For example, they can leverage to build a real estate portfolio.

Take advantage of tax credits, government-guaranteed loans, or grants offered to small businessmen to fund multiple streams of income.

Don’t use debt to purchase depreciating assets.

They factor in taxes when planning their lifestyle and investments.

For a little over $3.00 a day, starting at age 22, you can amass a portfolio worth over $850,000 in an IRA.

The difference between the financially independent and the rest of us is that they can make investing a priority.

Most people complain they have no money left over and that they live from paycheck to paycheck.

There are stories of very low-income people who manage to put multiple children through college but also graduate school and leave millions to their favorite charity.

These people are special in the sense that they had a goal and stuck to it no matter what.

They worked hard, saved their money, and achieved what they set out to accomplish.

Anyone can achieve financial freedom.

You just have to be disciplined and have your priorities in order.

You must make a conscious decision to be an investor and not a consumer.

This is what it will take to get you on the road to financial freedom.

The road to financial freedom is yours for the taking.

Steps To Gaining Financial Freedom.

Cash Is King.

The Main Reasons Why You Are Broke.

How To Set Goals.