Oftentimes, we consider personal finance as a way to independently build our financial life. You know, we want to be ahead of the financial aspect of our lives. And as humans, it is one thing we crave; our financial freedom.
For newbies, it’s a bit complicated especially when you don’t know what it is all about. Personal Finance is a way to meet your personal financial goals, be it having enough for short-term financial needs, planning for retirement, or saving for particular stuff.
Smart personal finance involves developing strategies that include budgeting, creating an emergency fund, paying off debt, using credit cards wisely, saving for retirement, and a lot more. You need to be highly financially disciplined.
It is just a way of saying “I’m putting up money for this” and you push further by creating means to actualize them.
If you really want to excel especially in your income and savings, you really need to become financially literate, so you will be able to tell the difference between bad and good financial moves and advice.
Now, it is necessary to know why is personal finance important.
I believe you don’t want to wake up one morning knowing you are broke or can’t control your financial life! As such, managing not just your day-to-day financial needs but your financial future is highly important.
Major Aspect of Personal Finance
There are five areas of personal finance you need to consider especially as a beginner.
- Income: This is obviously the bedrock of your financial life which explains where the cash comes in. It includes your paycheck, tops, pension, social security, investment, and a lot more. You don’t want to useless that now.
- Spending: Explain the money for any expenses you incur. Now, controlling the amount of money you spend can allow you to set up your financial future if you know how to set aside money for that.
- Saving: How to set aside money from your income that you do not spend, for your future is another thing. There are bound to be potential expenses whether they are planned or not, so you need to save up.
- Investing: Saving is considered income leftovers but investments are purchases that allow you to earn future income or savings. So it is like, you put your money somewhere and it grows for you as interest.
- Protection: You’ve got to protect your money from some financial risks which can be handled through a variety of financial products including insurance, annuities, and the rest.
How to start your Personal Finance Journey:
Now the big question is; as a beginner how do I start up my personal finance journey?
Though it can be quite difficult the following guides can be helpful
It is said that the foundation matters a lot in a building plan, and so does budgeting matters in personal finance.
For beginners, managing your personal finance starts with budgeting.
Budgeting is the process of laying down a proper plan as to where and how your money should be spent. With budgeting, you allocate money for a range of needs.
During budgeting, you identify your source of income and separate your needs from your wants. Also, while creating your budget, you create a space for emergencies and identify your long and short-term goals.
Checkout: 13 Helpful Tips on How to Stick to a Budget as a Couple
Stick to a realistic budget in other to get good results. Always review your budget once in a while.
When you plan your budget, you are;
- Less likely to end up in debt
- Less likely to get caught out by unexpected costs
- More likely to have a good credit rating
- More likely to be accepted for a mortgage or loan
- Able to spot areas where you can make savings
- In a great position to save up for a holiday, a new car, or another treat
Checkout: 11 Effective Budgeting Tips for Low-Income Families
You need to save for your future or for a rainy day. You can save any amount you want since there is no fixed rule surrounding that. As cash flow and needs vary across individuals, you follow the 50/30/20 rule.
According to the rule, you must spend 50% of your income on needs, 30% on wants, and save the remaining 20%.
There are people who find it difficult to save that is where automated savings saves the day for you! There are a lot of financial instruments that help automate your savings as a beginner.
For instance, You can give a standing instruction to your bank, for a fixed amount to be deducted from your primary savings account and deposited into a recurring account.
Tips for saving:
- Build a budget to uncover your spending habits
- Write down your savings goals
- Find the perfect high-rate savings account
- Set up an automated transfer to your savings account
- Discover ways to cut expenses and review your budget
Checkout: 15 Money-Saving Tips for Young Adults
This is an essential ingredient in personal finance as a journey. To grow your money and build a corpus for addressing short and long-term goals, you can make your need to invest.
Investment can be made in both fixed-returns and market-linked products. Here are 16 ways to start investing with little money. When you decide how much you want to invest, then you check out companies or websites that suit your investment. With little money you can invest in the following areas:
- Invest in an online high-interest savings account
- Open an IRA and choose your own investment
- Consider a peer to peer investment option
- Invest in the stock market
- Invest in real estate through a crowdfunding platform
- Invest in mutual funds with low minimums
4. Side hustles:
This is another option for growing your personal finance. Get a side job aside from your main job, this way you get a better saving option. Having a different paycheck aside from your main paycheck. This helps you to achieve your saving dream quicker than expected.
Consider the following side hustle ideas to make extra dollars:
- Dropshipping business: This allows you to sell a product directly to the customer without having to buy any inventory. You don’t need to have a big start-up with this. Your main focus is just on marketing and customer services.
- Freelancing: By going for this gig such as creating T-Shirt mockups for a client once a week and helping someone build a social media and other freelancing jobs, you can make extra cash.
- Consider a print-on-demand store: if you love to customize graphics and artwork in your free time, running a print-on-demand store could do just fine for you while you earn as it allows you to sell your custom artwork on products like T-shirts, bags, phones, etc.
- Blogging: from the comfort of your home you write on a particular chosen niche about topics that interest you. By adding affiliate links to your posts or linking the online store where you can sell dropshipping you can make money.
Checkout: 12 Side Hustle you can do While Working Full-Time
5. Learn to live within your means:
A lot of people find it difficult to live within their means. Know what you need and can afford instead of going for what you don’t need and can’t afford. Most people live from paychecks to paychecks, how then can they save money?
A cloth may cost $20 and the same kind of cloth cost $15. Agreed, you need the cloth but you can also go for the one with a $15 tag price and save the $5 from the one with $20.
Here are some tips to live within your means:
- Create a budget and work accordingly
- Track your spending. Always review what you spend your money on
- Plan large purchases to avoid impulse
- Look for cheaper ways to have fun and relaxation
- Ask for a lower price
- Leave your card at home to avoid the temptation of saving overboard, so go with cash or debit
- To save money on large purchases, try to wait for sales.
6. Create Emergency Savings:
There will be a time in your life when you need money real quick to solve a pressing need and you can’t depend on your paycheck. This emergency situation can be those basic needs you need at home. With an emergency fund set aside to protect you in case of a medical emergency loss of job, or stuff like that you definitely need to put aside some money for such a situation.
The aim of an emergency fund is to help you get back to your feet as quickly as possible. It is advisable to save enough money that can cover up to three months of your basic living expenses for starters.
Consider the following tips to build an emergency fund:
- Set a Goal
- Readjust your budget
- Optimize your Savings
Checkout: 10 Effective Ways to Build an Emergency Fund
7. Cutting your household bills and your mortgage:
When you sit down and review the amount spent on household bills, you will be surprised to see the chunk of spending you throw all in. Now when you realize that you are spending a lot on household bills, you need to consider a way out of these expenses:
- Reduce your phone and broadband bill. Call the supplier and ask for a better price and do some comparison.
- Get a cheaper mobile phone
- Cut the cost of water bills by having a free water meter installed
- Look for cheaper gas and electricity
- Splash the cost of driving and public transport
- Pay your bills on time
8. Paying Off loans and credit cards:
When you keep accumulating debts they become difficult for you to pay off. But it makes a lot of sense if you pay off your loan or money on credit cards so that charges will not increase based on the interest rate. When you have debts such as:
- Credit cards
- Store cards (which normally charge the highest rate of interest by the way)
- Personal loans from the bank
It is important to make sure you don’t break the terms of your agreement. Try to pay off debt before thinking of another one to cover the minimum payment of the previous.
Checkout: 9 Tips to Payoff your Credit Card Debt Aggressively
Why you should pay off your priority debt first. There are consequences you don’t need if you are climbing the financial freedom ladder, which includes:
- Visitation by bailiffs
- Receiving a court summons
- Being made bankrupt
- more likely to get caught out by unexpected costs
- more likely to have a bad credit rating
- less likely to be accepted for a mortgage or loan
- Possibly go to prison if you ignore or refuse to pay.
Personal Finance put you in charge of your life. With the right financial tools, you can navigate mist financial challenges because you’ve got your financial life together and on track.
If you fail to manage your financial life, you might just face the following consequences:
- Lack of savings
- Less financial security
- Out of control spending
- Incurring debts
- Financial stress and depression
Florence is a personal finance writer, who is passionate about helping others attain financial freedom. She covers topics from side hustles and debt payoff to investment and retirement.