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6 steps to manage your personal finances

Financial management is one of the most important tasks in business administration. However, it is also fundamental in our daily lives in order to sustain our quality of life and to be able to develop ourselves. In this sense, the following steps are useful to improve the management of personal finances.

Table of Contents

First of all, let’s start with the definition of personal finances.

What is personal finance?

Personal finance represents the set of activities and strategies that people employ on a daily basis to control household economic performance and keep a low financial burden on the budget. Nowadays, this is more accessible due to IT tools and specialized content forums.

Personal finance is constituted as the techniques of money management and control of expenses – fixed, variable, debts, etc. – that allow maximizing the performance of resources. Therefore, it employs different mechanisms and specific knowledge that organize the budget to maintain the quality of life and project into the future.

6 tips for managing your money:

Analyze your current situation

First of all, in order to implement a management of household finances, it is necessary to perform an analysis of our economy to know our current situation. In this sense, the stricter and more detailed our analysis is, the better we will be able to implement appropriate actions. There are many free programs that simplify this task.

In this sense, we must determine the total income we have and the expenses we receive on a regular and variable basis. Establish a reliable schedule of payment dates, financial obligations and financing possibilities. We must also determine how much we can save on a monthly basis.

Establish a monthly budget

Once we know our current situation, it is essential to draw up a monthly budget that covers all household expenses and provides a fund for variable expenses that may eventually arise. There are personal finance programs and apps that can help us in this task.

The budget should consider the payment of fixed expenses such as rent, utilities, taxes, medical expenses if any and the payment of debts. The task of personal finance planning is the most important step of all. In the event of surpluses of any kind, it is advisable to set them aside to generate savings or supplementary income.

If you want more information on how to manage your business finances, click here.

Save for emergencies

The so-called emergency cushion is a financial practice in which we set aside a percentage of our income periodically to provide liquidity in case of unforeseen expenses or other reasons. Although at least ten percent of income is generally recommended, our economic situation may not allow us to do so. However, even if we do not reach that percentage, any savings will be useful.

The emergency cushion should not be used under any circumstances other than urgency and necessity. Therefore, it should not be considered as part of the budget -although the latter should take into account the amount devoted to its constitution-. In case it remains unchanged and accumulates, we will be able to establish some use for that money later on.

Control your subscriptions and automate payments

In this step, we seek to maximize the use of resources and control expenses, so that we do not end up overpaying for late payments or perceive penalties and interest on our financial expenses -payment of credit installments, loans, mortgages or subscriptions of any kind-.

Automatic debit, once an accurate budget has been established, allows us to automate payments and completely eliminate these types of late fees. Most payment services, banks and online platforms now have this type of tool.

Keep your retirement in mind

The management of personal finances must always keep in mind the future projection. In this sense, we must take effective actions to consider saving as an absolutely necessary task that allows us to ensure our quality of life when we reach old age.

In this sense, in the same way as with the emergency cushion, we should dedicate a percentage of our income to actions that will assure us a pension plan or a retirement. There are different instruments and companies that offer economic plans that assure us an income and medical coverage for our retirement.

How much should you have saved for your age? Discover it here.

Think ahead: saving and investing

Finally, another highly recommended way to think about the future from personal finance management and books on the subject is to actively invest in the stock and financial markets. There are many instruments and assets with high long-term returns that are accessible to the average person.

Among the main options one can mention the stock market shares of technology companies such as Apple, Google or Amazon. Similarly, one can invest in passively managed mutual funds where the cost is low and the return is average, but lucrative in the long run.

Automate your account.

Currently, there are many techniques and guidelines that allow us to keep control of our budget and help us in the management of personal finances. The most important thing for these techniques to be effective is long-term projection and day-to-day discipline.

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