Five Tips to Better Manage Your Personal Finance

Saving up for the future and managing your finances can be very stressful, especially if you don't do it properly. Most of us don’t know the first thing when it comes to personal finances or how to make what we earn work for us. Most of us get overwhelmed about how ‘little’ we make when we look at how much we spend on monthly expenditure. That’s because we hardly have anything left as savings after meeting all our expenses at the end of the month. Managing this problem is precisely what Personal Finance is all about – how to manage your money properly so that you can fulfill your needs and live within your finances without taking out a Personal Loan.

Personal finance is all about how you manage your money and meet all the financial goals that you have set for yourself. These goals can be anything, like saving up to buy your own house, financing your higher education, or creating an emergency fund to take care of financial emergencies in the future. These goals also differ from person to person, as it depends on many factors – your monthly income, your expenses, your lifestyle, and financial constraints. However, there are a few straightforward ways to do that, and all that’s required is for you to turn these ways into habits over a long period of time so that they stick.

1. Budget: Yes, that’s right. The most commonly held misconception about living on a budget is that you have to live like a hermit. Well, not quite. The purpose of making a budget is to help you live within your means, prevent you from spending unnecessarily, and therefore helping you save for your long-term financial goals. A good way of doing this is making a daily or weekly budget (based on your convenience) after deducting a suitable amount for essential items like utilities, rent, groceries and lifestyle spends, as well as a little bit towards your savings. You’ll get a daily or weekly amount, and all you need to do is stick to it.
2. Save up for emergencies: You must have heard your parents use the phrase ‘save up for a rainy day’ a lot as a kid, right? Well, it’s true. You never know when a financial emergency or unexpected expense will hit you, and you also don’t know how serious it will be. Also, the whole point of earning a monthly salary is being able to take care of emergencies as and when they arise. That’s only possible if you save for yourself. Ideally, 25% of your monthly income should go towards saving up, but again, that depends on a lot of factors, as outlined at the beginning of this article, and your convenience.
3. Minimize debt: Okay, not all at once, but little by little. Avoiding debt sounds simple enough – don’t spend more than you earn. But all of us know that it’s easier said than done. Most of us have to borrow from friends or family or swipe our credit card from time to time, but your ultimate goal is to pay off all of your debt by the deadline so that it doesn’t accumulate. Another way of avoiding or limiting debt is by asking yourself if you really need an item before you buy it. See if you can lease or rent it (like property, vehicles, or even magazines) instead of purchasing it.
4. Use your credit card with caution: Even better, don’t use one at all if you can help it because credit cards can be major debt traps. You need to remember that a credit card is just like any other loan. You “borrow” money and it’s not free.
5. Monitor your credit score: Your credit score is a three-digit number between 300 and 900 which denotes your financial standing and creditworthiness. Banks use this to find out your repayment history, the number of ongoing loans you’re paying off, how long you’re taking to do so, and also the number of times you’ve made new credit inquiries. Therefore, if you have a low credit score, it’s almost impossible for you to avail a loan from most banks and financial institutions. Even if a few banks still offer you a loan despite your low credit score, it may involve really high rates of interest along with some collateral.