A Beginner’s Guide to Personal Finance: Managing Your Money WiselyBy • Last Updated
Managing personal finances is a crucial life skill that should be learned by everyone, irrespective of their financial situation. The world of personal finance is vast, with different rules, experiences, and advice, making it hard to cover everything in one article.
However, this guide aims to provide a basic understanding of personal finance, spark your interest in the subject, and motivate you to research and study further. In this guide, we will discuss the recommended goals to start with, including building an emergency fund, budgeting, and tracking expenses. We will also cover some of the popular budgeting rules of thumb to help you manage your money wisely.
Importance of Personal Finance
Personal finance is an essential life skill that everyone should learn. It involves managing your money effectively to achieve your financial goals and objectives. Regardless of your financial situation, understanding personal finance will enable you to make informed decisions and take control of your finances.
Building an Emergency Fund
An emergency fund is a critical component of personal finance that acts as a safety net during unexpected life events such as job loss, medical emergencies, or car repairs.
Financial experts recommend saving three to six months of expenses in your emergency fund. If you are just starting, building an emergency fund should be your top priority.
Remember, your emergency fund should always be fully stocked, and if you need to use it, all saving priorities for other secondary goals should be dropped to restock the emergency fund.
Budgeting and Tracking Expenses
Budgeting and tracking expenses are crucial habits to start developing early on in your personal finance journey. Tracking your expenses helps you identify where your money is going and enables you to make informed decisions about your spending habits. You can use a simple Excel or Google spreadsheet to track your expenses daily.
Categorize your expenses, set reminders, and signal which expenses are unnecessary and which you want to avoid in the future. Additionally, develop the habit of asking questions instead of passively accepting your expenses. Ask questions like "Can I live without it?", "Do I need it?", "Can I afford it?", "Can I lower or cut back on this expense?".
Popular Budgeting Rules of Thumb
There are several budgeting rules of thumb that you can experiment with to manage your finances better. The 50/30/20 rule is a famous budgeting rule that recommends spending 50% of your income on necessities, 30% on personal purchases, and 20% on financial goals like paying off debt or saving for retirement.
Another variation of this is the 70/20/10 rule, which recommends saving 70% for living expenses, 20% for savings, and 10% for debt payments.
In conclusion, personal finance is a vast topic that cannot be covered in one video or article. However, by prioritizing building an emergency fund, budgeting, and tracking expenses, you can take control of your finances and achieve your financial goals.
Always remember that personal finance is a mindful process that helps you prioritize your money management based on what you prioritize in life and what you should cut back on. Happy budgeting!