March 2 2019 - Personal finance is related to how you manage your cashflow, including your income, savings, expenses, and investments. By taking tighter control of your finances each day, you could enjoy a healthier bank balance and reach your financial goals at a faster rate. However, to maximise your income and savings, you will first need to improve your financial literacy. To do so, read the below starter's guide to personal finance.
A Personal Budget
To take control of your finances, you'll need to devise a budget with your long-term financial goals in mind.
It might help to follow the 50/30/20 budgeting rule, which is as follows:
- 50% of your net income (after taxes), which should pay towards: rent, utilities, groceries, transport and other living expenses.
- 30% towards your lifestyle expenses, such as clothing, restaurants, etc.
- 20% allocated to your financial future, such as reducing your debt, building an emergency fund, saving for retirement, investments, etc.
Prioritise Your Financial Goals
Of course, to effectively create a budget, you'll first need to prioritise your financial goals. This will ensure you pay close attention to the ones that are most important to you.
To boost your bank balance and ensure financial security, you must set:
- Long-term goals (Escaping debt, buying your first home, early retirement.)
- Short-term goals (Following a personal budget, reducing your expenditure, avoiding credit card debt.)
By focusing on your monetary goals, you can avoid making foolish decisions, which could lead to financial hardship.
Ask for Financial Advice
Once you have augmented your savings, it might be worthwhile investing your wealth to improve your financial security. To make an informed decision, you should seek professional advice. For example, Castle Finance can provide assistance on the next best steps to take regarding your finances.
Monitor Your Credit Score
In addition to savings and investments, your credit score can also determine your financial future. If you dream of owning your own home or want to secure some form of financing, you'll need a rock-solid credit history to do so.
The factors that will determine your credit score will include:
- How long you have had credit
- Your credit to debt ratio
- Your payment history
To ensure you never build a poor credit rating, you'll need to make debt repayments on schedule and avoid living beyond your means. It might also be beneficial to set-up direct debit repayments when possible to ensure you never miss a payment.
While building a healthy emergency fund and eradicating debt are crucial to your financial future, you must also consider your family members should the worst happen. For example, it is an intelligent decision to invest in different types of insurance policies, such as:
Home insurance Car insurance Life insurance Employment Insurance
The above policies will ensure your family's finances are protected if your property is damaged, your car breaks down, you suddenly pass away, or you lose your job.
You also should ensure your estate is bequeathed to your loved ones in the event of your death by writing a will. Doing so could save your family a considerable amount of heartache and expense.