5 Tips to Successfully Manage your Personal Finance

There’s nothing more exciting in life than having your finances in order. It is a confidence booster!

Having a secured financial life can be a daunting task that requires good personal finance management skills. It requires a determined individual who knows where they currently are and have a clear vision of where they want to be.

Possessing the right financial management skills and strategy allows you to have full control of your finances. It may be hard but, it is doable. With just 5 tips, you can achieve your financial freedom.

In this article, we tackle 5 key factors that can help you work towards your long-term financial security.

Personal Financial Management Defined

In simple terms, personal financial management is the process of managing financial activities such as income, savings, spending, investing, and protection. It is all about understanding your financial situation, having a solid plan and sticking to it.

Personal financial management is important because it gives one a better perspective of where and how they spend their money. It can help with understanding money better and learning how to control it to achieve your financial goals.

5 Tips to Successfully Manage your Personal Finance

1. Set Financial Goals

Writing down your financial goals is key, be it short-term, medium-term, or long-term. This is a crucial step if, for example, you want to save for a holiday, want to get out of debt, focus on a down payment for a house, or want to set aside a certain percentage of your income for your retirement.

Setting your financial goals will help you to analyse and understand the steps required for you to manage your finances.

Your goals will be the driving factor that will motivate you to prioritise a budget, to save, and most importantly stay away from debt.

Be realistic with your goals because the aim is to achieve them.

2. Set an Emergency Fund

To avoid financial setbacks due to unforeseen expenses, I would advise you to set up an emergency fund.

This way you will be planning ahead for expenses that emerge unexpectedly, e.g., car breakdown, medical care or even money to go on a vacation or a down payment for a house. This is just another form of saving.

Saving is a good financial habit that everyone should practice. You don’t need a lot of money for you to get started, if possible, you can put in 10% of your monthly income into your emergency fund.

To make it easy for you, you can set up an automated transfer.

To help you get started with your savings, here is an article that highlights the Best Savings Account in South Africa 2022

3. Start Investing

Investing is not the same as saving. Saving means putting money away while investing is buying assets such as stock, bond, and mutual funds with the aim of having the money to grow.

The secret in investing is making the right decisions that aligns with your goals. This includes deciding on the types of companies to use for your investments and the things you can invest your money in.

There are a wide range of investment options, from safe lower-return assets to riskier, higher-return ones. So, it will be your duty to do your homework and read as much as you can on what you want to invest in before putting your money in it.

You will need to understand the advantages and disadvantages of each investment and how they fit into your ultimate financial goal.

Remember to opt for investments that match your required timeframe.

4. Make Budgeting a Habit

Budgeting is all about balancing your expenses with your income. It is simply a spending plan that you need to create in advance, which will help you to determine if your income will be enough to cover all your needs.

A budget is very important to have as it will help you survive and be finically confident from month to month. It will also help you master the lesson of prioritising your spending for all essentials.

With a good budget, you won’t easily be tempted to use credit or spend beyond your means.

If you are building a budget plan from scratch, make sure you start with all the income you generate each month and move to your expense.

You may categorise your expenses into fixed (rent, transport) and variables (food, entertainment).

Your savings should also be included in your budget as an expense.

You can read more here: How to Budget Money

5. Plan for Retirement

No one can dodge the retirement stage. As much as we are working hard right now, there will come a time when we will have to put the tools down and rest, which means no stable income.

Therefore, it is important to start planning for your retirement. You can plan for your retirement in 2 ways:

· Saving for retirement – This will be most helpful when you lose your job.

· Generating income from your asset – the right investments will ensure that you have a steady income for as long as you live.

Other Important Tips

In addition to the above-mentioned tips, you may also want to:

  • Pay off your debt – prioritise the high-rate debt, this will have a positive effect on your credit score.
  • Stay out of debt – Avoid buying on credit.
  • Track your spending – stick to your budget and only spend when necessary.
  • Protect your finances – Get insurance. It can be Mortgage Protection insurance, Health insurance and Critical Illness insurance, Term insurance, or Personal Accidental insurance.

Personal Finance Tools

There are apps that you can download from the app store and use to manage your finances. Just to name a few, there is “Wallet: Budget Planner Tracker”, “22seven: Budget, Track, Save”, and “Splitwise”.

Major banks like Nedbank have tools set up to help their clients manage their finances better. These tools have the functions to track your money, understand your spending patterns, monitor your budget, and save. It’s like having a personal financial manager, anytime, anywhere.

We often fail to secure ourselves financially because we are not aware of the things that should be done for it. If you put these tips into action, your financial problems with be those of the past and you may reap the rewards of lower debt, an excellent credit score, and most importantly savings for your future.

Article Highlights

  • Be financially smart and set smart financial goals.
  • Invest in learning basic financial rules that will help you manage your finances better and with ease.
  • Have an emergency fund that you put money into monthly.
  • Save for your retirement.