"You only have to do a very few things right in your life so long as you don't do too many things wrong," Warren Buffett.
If there is anything that must be right in your life, it should be your finances. More so, your business and personal finances must be well understood to get it right. Although your personal finance might have been managed over the years by you, managing it with your business finance is a different ball game entirely.
Experts say that the hardest learning curve for any business owner is learning to differentiate their business finance from personal finance and how to manage them accurately.
In this article, we would:
Discuss what personal finance is
Highlight strategies to help you manage personal finances
In part 2 of this article, we would take a look at the business aspect of your finances. For now, let's dive into the personal finance world.
What is personal finance?
According to the corporate finance institute, personal finance is referred to as the process of planning and managing all personal financial activities like spending, saving, income generation, investing, and financial protection. Furthermore, personal finance can be summarized using a budget or a financial plan.
Investopedia defines personal finance as the term that covers everything that has to do with managing money, saving, and investing. It entails insurance, budgeting, retirement plans, tax, and other forms of financial planning.
Following these definitions, we can see that personal finance has a lot to do with achieving your personal financial goals. It includes your short-term financing, retirement planning, child saving, saving for a child's college education, and personal spending.
It does not end at having a plan for personal finance; you must develop the right strategy to see that you achieve your financial goals.
Strategies for personal finance
The earlier you start drawing up a plan for your finances, the better for you. It is never too late to start working on a financial plan for yourself and your family to attain financial freedom and security. Below are our best tips and strategies to help you with your personal finance.
Get a budget
A budget is very important if you want to stay within your means or earnings. This will help you meet your long-term goals by saving. There is a popular budgeting method that has helped a lot of people – the 50/30/20 budget method. This means 50% of your net income (after tax deduction) is for your essential living need – groceries, transportation, utilities, and housing/rent. 30% is for expenses on lifestyle – dinner nights, shopping for clothing, etc. The remaining 20% goes to future financing – paying off debt, retirement savings, and savings for emergencies or rainy days.
Always have an emergency fund.
This can be seen as paying yourself to have cash for unexpected and unforeseen expenses. Such expenses could include serious car repair, medical bills, urgent home repairs, and rent payment in case you are laid off. You should make it a habit to save between three to six months of your net income. Some experts even believe that it's best to put aside 20% of every paycheck you receive for the month.
Depending on the job or career you have, it is typically estimated that you should gather 3-6 months of expenses should you have an emergency arise.
Don't let debt get out of hand – limit debt.
There is a saying that you shouldn't spend more than you can earn to keep you out of debt. This might sound very simple, but it takes a lot of effort to achieve. Although some people still have to borrow money once in a while – and some debts can be advantageous if you end up getting an asset. An example of a good debt could be taking out a mortgage to purchase a house.
Be wise with the use of credit cards.
One major debt trap for most people is credit cards. Not having a credit card in this age and time is simply unrealistic since they have more applications other than to purchase goods. Although credit cards are a great way to track your spending and establish a credit score/rating, you still have to be careful not to get into debt using them.
In conclusion, there are other things you need to consider when drawing up a strategy for personal finance – monitoring your credit score, considering your family in your strategy, paying student loans, retirement planning, and tax break maximization. You need to get it right to make any headway in your finances. This is where Nucleo financial can helps you.
Nucleo financial is the leading expert in financial coaching and accounting that is focused on helping you maximize your finance within the Dallas-Forth Worth area and the United States as a whole.
Have any questions on finance? Talk to us today.