Everybody in the world wants to be free of financial problems and need to satisfy his/her basic desires. The wants and needs of people may vary based on their regions, family background, level/status in the society, economic conditions of the particular country and the whole world too. Even members of a single family have different wants and needs.
With an idea on what Financial planning is, let us see how to attain Personal Financial Management.In order to fulfill our wants and needs, we must be aware of our personal financial state. To be aware of our financial state, we must study our assets and liabilities.
The 3 most important variables of your personal finance equation are:
1. Income represents all the cash inflows that you receive because of your direct job, side-jobs and other passive sources. A single source of income may or may not guarantee the much needed financial freedom. It is always better to have as many alternate channels of income. To read more on the type of Income, read our article on Know your Income Sources.
2. Debt represents all the financial liabilities acquired to meet your needs and wants. A considerable debt can be good for your financial state. It is always better to limit your debt and pay-off it before procuring new debt.
3. Expenses represent all the cash outflows you perform to maintain your life. There will be always expense in life one way or another. Managing expenses is critical skill much similar to earning.
To realize your potential for financial freedom, you are required to develop some financial habits and disciplines. You can use some of the ways/methods mentioned below to achieve your financial goals.
1. Zero based budget: Budgeting everything you do with money makes you more accountable for your spending and creates awareness regarding the financial state of yours.
2. Cash: Paying any purchase makes you more responsible .There is a psychological factor behind this way of purchase. Your senses (touch & sight) experience a loss of value while transacting in cash.
3. First basic survival: Prioritizing the expenses may improve your financial state. The most common order of expenses we exercise are:
4. Live like no one else: Don’t try to live like someone else. People always fall for this trap of copying other’s lavish lifestyle instead of creating their own better and sustainable lifestyle.
5. Debt snowball to clear your debt. This is method of paying off your debt by starting from least to biggest of debt order.
6. Save before paying off debt.
7. Have different set of saving: Savings can distributed into different categories for you, your spouse, parents, children’s, friends, relatives and acquaintance.
8. Keep your income in mind always
9. Don’t use debt to clear debt
10. Clear present debt before going for new debt.