When you think of financial management, you probably think of a company and how its finances are organized. However, of course, this is not only limited to business, but also personal financial management.
It is a fact that Millennials have changed the way the financial industry treats a group of people! This generation has experienced significant technological progress but also huge economic developments and unfortunately they are on the verge of traditional financial values and the modern way of life and methods that are very different from the previous generation!
Why is financial planning important? Financial planning requires you to plan with the money you are making, so you have a clear picture and can make the most of it to achieve your short or long term financial goals. Then we can have a Performance Management Cycle. These goals can be anything from bags to buying a home. The economy is constantly changing and it is important to learn to manage these changes!
This is exactly what we will analyze in today’s article, more precisely:
What is Personal Financial Management?
The Three Rules of Correct Financial Management.
There are also tips to keep in mind. So let’s start with the first and most basic. What is Personal Financial Management? Personal financial management means what a person needs to have about finances in order to get the most out of them for current and future planning. Simply put, it is about managing and planning an individual’s financial behavior, including income inflows, expenditures (outflows), savings, and investments. Let’s take a closer look at these numbers, starting with earnings.
#1 Inputs
As the term suggests, input refers to the influx of income that a person requires to satisfy his or her needs and desires. Of course, there may be multiple sources of income, such as: active income, passive income, pension, allowance. This can be used by you or anyone else not only to meet your needs, but also for investment and savings.
Because an essential part of an individual’s finances is the steadily increasing inflow of income.
#2 Outflows
When we talk about spills, we mean the expenses that a person has in their daily lives. Think of it like this:
- Rent
- Accounts
- Taxes
- Eat
- fun
Some of these are necessary expenses (rent, taxes, etc.) and some are simple desires (entertainment, travel, etc.).
In any case, all of the above factors are subtracted from the person’s input. If outflow is greater than inflow (outflow > inflow), it is in deficit. In this case, it is important to manage finances properly to reduce this deficit. This includes limiting “unnecessary” outflows and increasing inflows through the investments we are about to see.
#3 Investment
Investing is an integral part of personal finance and refers to the purchase of assets with the intention of making a profit in the future. Of course, not all investments are profitable, so there is always an element of risk to consider when managing personal finances.
General investment concerns:
- stock
- Knead
- property
- startup
- art and more.
Investment is directly related to inflows as it can increase inflows and increase savings.
#4 Save
Saving is “holding” money that you don’t need immediately to meet future goals. For example, if there is a surplus between input and output (input > output), you can either save the full amount of this difference, or save part of it and invest the rest. This is a classic case of personal financial management, where as an individual you have to decide what percentage of your surplus to save and how much to invest. Now that we’ve covered the most basic things about the topic, let’s break down his three rules that you should always remember.
Three rules of good personal financial management Let’s start with the first rule.
Rule 1: understand the input
One of the most important things to do as part of your planning is to get an accurate picture of your income stream. All you have to do is list your income and what you got out of it. If you are employed or retired, you will be paid a fixed amount each month, so things are relatively easy. But for freelancers, things get a little more complicated because income isn’t always stable. However, you can look at the entries for the last 6 months and get the average. Finally, don’t forget to include all passive inputs. All of this will help you figure out your average monthly income so you can decide how to go about it.
Tip: It’s a good idea to monitor both gross and net income, that is, after tax.
Rule 2: limit the expenses
The second rule is about limiting output, or cost. This is an important practice because if most of your spending is “nonsensical” spending, you have less room for saving and investing. Whether excursions are pointless is of course purely subjective, but it can limit some desires such as fun to some extent. To do this, you must have already entered expenses such as the rent, insurance, taxes and expenses
Only then can you properly manage and organize your drains.
Tip: Taxation is a significant liability associated with outflows. Find a Tax Friday package to file your taxes correctly and pay the state for what you owe.
Rule #3: find the right tools
You’ve now seen her two foundations of personal financial management.
income and expenses. The third rule is about using the right tools to make financial management easier and more efficient. One of the easiest tools is Excel or Google Sheets. With a spreadsheet, you can not only enter all the data you need, but also automatically perform various calculations (sum, average, etc.), create payslip and display this data like a graph. Another important tool is Finloup. Finloup gives you the opportunity to buy something and pay later. Buy now, pay later, even in 4 interest-free installments.
A fact that, as a consumer, offers great flexibility and convenience in managing your finances.
Ιn a nutshell Managing personal finances is not always easy. This is an important and ongoing process that ideally should be done constantly to keep your finances organized and on track.