Have you ever wondered how much you earn and where your money goes? If not, you may not be fully aware of your personal finances.
Personal finance is the complete account management of your own or your family’s financial resources, like income, expenses, budget, investments, debt, insurance, and risk management. It helps someone to figure out their way to a financial journey by ensuring long-term financial stability.
Mainly a personal finance includes five basic areas like income, spending, investing, and protection.
Income: The money that you earn from your profession. You work as a professional, or you do business; what you earn is your complete income.
Spending: How you spend your money from your income is your spending. It could be your daily shopping expense, bus fare, mobile bills, or loan payments. Every penny you spend is your spending.
Investing: After income and spending, using saved money in various deals to generate additional income and grow money over the time is your investment. Your untouched money is your asset, but if it is not used, then it may not give you much value. Through investment, you can beat inflation over time. Most popular investments are stocks, bonds and real estate.
Protection: Life is all about uncertainty;
your income, saving, invest may become in risk for natural reasons, some unforeseen events like accidents, illness or property. Everything is not in your hand but Risk management is in your hand to make sure your financial security.
How to plan your personal finance
A good financial blueprints build with some great financial ideology. Lets discuss about main components of financial planning processes-
Analysis
Setting up Goal
Strategy Formulation
Execution
Monitoring and reassessment
1. Analysis
Find out where you are standing right now.
Before sprint you need a short checkup of your money map today- income, spending, debts, savings and risks.
Gathering details of last 2-3 months of bank and card statements, pay stubs or business income reports, Loan details, investments and savings balances, insurance policies etc.
2. Setting up Goal
What you want to achieve and when you want to do it
Build up a short list with three lines per goal: What, when and how much per month. Do a little math and prioritize your goal by marking up goals Goal A(must do), Goal B(niche-to-have), Goal C(Someday). Matching risk to time when money needed in expected years stays conservative, longer timeliness can handle markets ups and downs.
3. Strategy
The Plan That Fits Your Life
Keeping emergency funds, Pay highest interest paying debt first, Strategy is your guardrail. It keeps you from changing lanes every time headlines shout. Targeting mix and low cost investments with a rebalance rule, Using tax advantages when available, using health, term life, disability, property and umbrella liabilities, automate everything possible like transfer to savings; invest after payday; bill autopay etc.
4. Execution
Make It Real and Friction-Free
Here plan turns into the progress. In execution, following the budget, making investments, paying down the debt, and sticking to the plan.
Here is some tricks for building habits that supports your plan:
Automate savings so you don’t rely on willpower.
Set reminders to review your spending weekly.
Celebrate small wins, like paying off a credit card. Because progress fuels motivation.
5. Monitoring & Reassessment
Adjusting as Life Changes
Life never goes how it planned, and your finances won’t either. May be you face some unexpected medical expenses, or decide to change careers. So, Financial plans should never be “set it and forget it”.
Schedule regular check-ins, quarterly or at least yearly to see how you’re doing.
Are you still stuck with your goals? Do you need to make adjustments?
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