The last couple of years have been very difficult for most of us when there were travel restrictions, lockdown, fear of getting sick and what not. Most of us have gone through many issues including financial problems. These were the times when people realized what personal finance means and why it is so important.
In this article, I am going to talk about how to take control of your personal finances. We will talk about some of the ready to implement ideas so that you won’t have to think when there is a need.
Financial stress can be caused by a variety of things including - debt, unexpected expenses, purchase of things that were not required. The good thing is, these can be solved and you’re not alone. Let’s start and see how to take control of your personal finances.
3 tips on how to take control of your personal finances
Here are some of the proven tips to manage your personal finances which will help you build wealth and also help in unforeseen conditions-#1 Budget everything
The easiest way to manage your personal finances is to budget everything. When you start your month, make a budget for everything and stick to it with your plans. This might sound obvious, but think about when you budgeted last time?
The key to creating a successful budget is not making unrealistic goals or expenses. It doesn’t matter how much you earn or spend, if you won’t make budget and plan everything, you will end up in problems. To start with budgeting, maybe you can start with a spreadsheet (you may use Google sheet or Microsoft Excel for this). This should have all the categories of expenses you might incur and may include below-
This should be a column and in the right column, put the amount that you are going to spend in each. You may also add a column for the payment date or remainder.
In a simple word, the rule of thumb is that individuals should have enough in an emergency fund to cover three to six months of living expenses. You can also use an emergency fund estimator to calculate how much of an emergency fund you may need. For example, if your monthly expense is $2000 then you should have an emergency fund of $12000. So, this is typically 6x of your monthly expense.
• How much money do you need for the goal?
• What is the duration of the goal?
• What kind of return are you expecting and what is your risk appetite?
The goal can be anything like – Marriage, Kids education, Retirement, Travel plan, buying car, buying a home and a lot more. So, think of these, when you need them, and how much you need.
Depending on all the above factors, you can invest in suitable funds starting from equity market (like stocks, Mutual fund, etc.), debt funds (like bonds), legacy investments (like FD, RD), Gold, real-estate, and more.
- Savings – Yes, keep it as a category
- Mortgage/rent - Car payment/ Car insurance – If you have multiple loans, you may also consolidate all in one monthly payment. For more details on how you can do debt consolidation, click here.
- Health insurance
- Student loans
- Home expenses - Groceries/Food/Other necessities, Internet, Phone, Fun
This should be a column and in the right column, put the amount that you are going to spend in each. You may also add a column for the payment date or remainder.
#2 Create emergency funds
Whenever you talk to any finance expert about the investment, the first thing they ask you is – whether your basics are covered or not. These basics include – Health insurance, Term insurance, Emergency fund, and additional insurance as per your requirement. Below I am sharing a golden plan for the estimation of the emergency fund-In a simple word, the rule of thumb is that individuals should have enough in an emergency fund to cover three to six months of living expenses. You can also use an emergency fund estimator to calculate how much of an emergency fund you may need. For example, if your monthly expense is $2000 then you should have an emergency fund of $12000. So, this is typically 6x of your monthly expense.
#3 Invest by setting up the goal
Now when you follow the above steps, the next step is to invest. Remember investment should be driven by goal like –• How much money do you need for the goal?
• What is the duration of the goal?
• What kind of return are you expecting and what is your risk appetite?
The goal can be anything like – Marriage, Kids education, Retirement, Travel plan, buying car, buying a home and a lot more. So, think of these, when you need them, and how much you need.
Depending on all the above factors, you can invest in suitable funds starting from equity market (like stocks, Mutual fund, etc.), debt funds (like bonds), legacy investments (like FD, RD), Gold, real-estate, and more.
Conclusion
This was a quick guide on how to take control of your personal finances. The earlier you start planning personal finance, the better it is. Do let me know how you manage your personal finances.
Ashutosh Jha
Ashutosh Jha is a professional blogger, Blog and IT Consultant. He writes about Blogging, SEO, Making Money, Internet Marketing and Web Design.
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