Usually, if you will need to contact a finance expert on your personal finances, it means you are in a real mess; and of course that is the only time people look up the phone number of financial management professionals. For me, being able to manage your personal finances is more of common and street sense than an academic exercise. That is why even some of the most successful lawyers, bankers, and even finance professionals themselves have one time or the other run it financial trouble. In managing your personal finance, the common sense comes in knowing the difference between what you have and what you don’t have. The street sense comes in knowing what you need and what you want. As long as you are unable to draw the lines between these elements, you could be running into a lot of trouble with your finance. Let’s look at some of the basis of the common sense aspects of good financial management tips
1. Create a personal budget – we all know it’s your own money. You have worked for it and it has being the fruit of your labor. But the fact is that your own money is not limited. Taking a penny off your million dollars will no more make you a millionaire any longer. A budget is very effective when it honestly shows your incomes and expenditure in an honest manner. A budget planning software could make it easier and intuitive.
2. Set long term goals – what are the targets that you have set for yourself for the next 5 years? How much would you have paid on your mortgage, what would have being your family size? What would have being your level of credit card debt? The answers to these questions lies in setting up long term goals that will reflect your finances over the planning period.
3. Start small and work towards a higher ground – depending on your level of income, you may be able to afford a big car, a big house and luxury golf membership. But all these come at a cost. Insurance and subscriptions. These will eat into your income and though they might bring no real value, your chances of saving for the future will be limited. Live a modest lifestyle and build a steady personal wealth then you can enjoy all you want later in your life.
4. Shop wisely; even for essential services – sometimes we carry the notion that we should not compromise price with value in terms of auto insurance, health insurance and mortgage rate. But the fact is that even with these services, you better compare and contrast. There could be huge savings to be made from simple vigilance which will not necessarily alter the value of the product involved.
5. The bottom line is live within your means – don’t spend what you don’t have and if you do, you will be paying for it as it is someone’s resources, that is what they call opportunity cost. There should be no reason to spend outside your means unless you are looking at hiring a personal financial management expert in the few years to come.