Personal finance encompasses everything from banking and budgeting, saving, investing and protecting one's finances - from paying down debt or saving for retirement to short and long-term financial goals like paying down the credit card balance or investing.
As part of personal finance, identifying where your money comes from and where it goes is the first step. This involves listing income sources while subtracting expenses.
Your Income
One of the key components of managing personal finances is understanding your income and expenses. This involves all cash inflows you receive such as salary, profits, wages, pensions, investments or dividends as compared to what is spent each month.
expenses cover essential costs like your mortgage/rent payment, utilities, food and transportation; in addition to discretionary spending such as shopping and entertainment. Ideally, your income should exceed expenses so that you can set aside money for emergencies and future goals.
Financial management involves mastering several skills, such as budgeting, banking, savings and investment strategies. Becoming financially literate is also crucial - being aware of what advice is good and bad can help guide decision making processes and guide wise choices. You can gain more knowledge by reading free online articles, taking courses or podcasts or visiting your local library.
Your Expenses
An essential aspect of personal finance is understanding the relationship between income and spending. Income refers to any money coming into your bank account each month; expenses represent what money has been spent on.
Fixed expenses such as rent or car payments remain consistent month to month, while variable expenses vary month by month such as groceries, clothing, eating out, utilities (cell phone service provider fees, gas, hydro etc), hobbies/entertainment and planned charitable donations.
Create a budget to gain insight into your spending habits. Track all expenses over time using it by first calculating total monthly income, listing expenses such as rent/mortgage payments, auto insurance, utilities etc and then comparing these figures against spending guidelines to see where spending could be reduced and financial stability achieved.
Your Savings
Financial peace of mind requires proper management of income and expenses. Your spending should not exceed your income, while setting aside savings can provide peace of mind if anything unexpected arises or emergencies occur.
Your savings should comprise any unused funds after paying your fixed and variable expenses, such as take-home pay, tax deductions and additional revenue streams such as side gigs or online businesses.
Fixed expenses should make up roughly half of your budget, including rent or mortgage payments, utilities (cell phone service, internet service provider fees, hydro costs, insurance costs and groceries. Variable expenses such as entertainment, personal care products and eating out should make up the remaining percentage. It is ideal to set aside three to six months worth of expenses in savings to avoid debt in times of emergency - having a savings plan also encourages prioritizing future goals!
Your Debts
Personal finance entails managing both your income and expenses, setting and reaching financial goals such as saving for retirement, paying down debt and growing assets.
Begin by recording all of your expenses using an expense recording tool such as a budget app or spreadsheet. Be sure to include all monthly bills - both fixed costs such as rent/mortgage payments, as well as variable costs like insurance and food (both grocery store purchases and restaurant visits). Don't overlook expenses like ATM fees, data overages and subscription services which could quickly add up!
Subtract expenses from income each month, to see how much is left over for savings or to cut expenses. Adjust as necessary in order to achieve long-term financial success. It's essential that spending and saving are balanced as part of an overall goal to be met successfully.
