Knowing these five steps can help you Managing Personal Finance far better than what it is right now.

Managing personal finance is one of the biggest challenges that we come across in our day to day life.

I was going through an article by Jessica Dickler on CNBC  which says the household income has grown over the past decade, it has failed to keep up with the increased cost of living and to manage this more and more usage of credit card is happening, debts are increasing.

Though I believe in living low and uncluttered that never refers to not managing personal finance. Rather, those who are living low manage personal finance better. You can read the full article here.

Though this article is mentioned by people in America the same is happening almost everywhere. Hence, I thought of writing this blog on the basics of managing personal finance as it influences your quality of life to a great extent.

There is no harm in accepting that we all are materialistic. After all, we live in a materialistic world with rapid changes in technologies and innovations.

Even most of the so-called courses to become non-materialistic also sells in exchange for money!!!  And money is the tool to experience our life and the world.

We trade our knowledge/ labor/work/experience to earn money and experience life in exchange for money. The way of your Managing Personal Finance influences your quality of life to a great extent.

Money is the physical form of energy which represents prosperity. Money plays a vital role in our life. It’s the Law of Nature that you give, and you receive. Honestly, the way you treat money, you will get the same kind of treatment from Money as well.

I came across lots of people who keep complaining about low earning and stay dissatisfied. I hope you also have met such people in life. And if you meet them after a few years also, you will find most of them are still dissatisfied as well.

Respect money. It gives you prosperity. You must treat money with love and be thankful for each and every money you earn or receive. Treat money as a power which helps you to sustain and experience this journey of life.

1. Know Your Actual Income:

When I am talking about Managing Personal Finance, I am actually referring to the commercial you.

To understand it better, let’s take an example. Imagine an organization which manufactures Mobile Phones. They started operating in the month of January. In the month of February, their total sales of mobile phones were $5000000. The sales collection came to their account in the month of March and the owners withdrew the entire money as they thought that is their earning for February.

They have not paid their operating and manufacturing costs (Salaries, raw materials, electricity bills, rents, etc.).

What is your view on those owners? Your answers might be Insane, Idiot, Illiterate and much more but whatever it be, I am sure, your view will not be good.

Similar to that owner, if not you, you will come across lots of people who think whatever money they receive is their earning. They may consider their CTC or business income or income from any other sources or their dependent income as their earning.

But, thinking that way is similar to the way the owner was thinking in the above example. You also have an expense. These may be your household expenses, your memberships and subscriptions, your rent, your installments, your insurance premiums, your fuel, your shopping, and other expenses.

Once you deduct all those expenses, whatever you are left with is your actual income. And whichever angle you see, this is true. Your Actual Income is what’s left post your expenses.

And again, if not you, there are lots of people who know what the amount they receive but they don’t know what is their actual income. That’s how the entire business runs, that’s how every commercial project is evaluated. Then why not you.

I still remember, in one of my sessions, I have made participants do this calculation with some approximations and lots of them found that they earn more than others, but their actual income is less than them. Calculating your actual income gives you a great platform for Managing Personal Finance better.

2. Save But Don’t Under or Over Save:

Saving money is good. We all need the money and its absolutely wise decision to save money. But, your saving should be backed by a powerful purpose. If you don’t know what are the things for which you will save, you might end up saving low than what is needed or save more than what is needed.

Saving never requires a huge chunk of income. Rather, it’s a habit.

Whatever amount you are earning be it $100 or $100000, you can save some amount from it. It’s all about creating the habit of saving and then things will fall into place.

We all love financial freedom and we all actually look forward to it. Saving is the only way to achieve financial freedom apart from earning.

If you love, respect and treat money with thankfulness, I am sure you will not let the money you earn to go in vain.  Sometimes, we become so indulged in saving that we stop experiencing what we want to.

We deprive ourselves of what we want. For some occasion, doing so may be good. But regular practicing the same can attract poverty consciousness and you may find yourself in a dissatisfied situation.

Also, there are some situations where we want something, but you know you cannot buy now. Instead of saying yourself I don’t afford it, start planning how you can buy that if it’s worth buying.

3. Your Habit Of Spending:

The most important thing you can do with money is purchase. Be it a product or a service, the purchase is something which almost happens daily in our life. And it’s obviously required as well.

But with what is required, we sometimes purchase what is not required as well resulting two things –  1. Mis-utilization of the money and 2. creating an unnecessary stock of what you don’t want.

Imagine you are working or consulting or doing a business where your one-hour earning is $500. Will you do something leaving that where you will get hourly earnings of $50? Hope your answer will be No.

And probably the answer for such No is you don’t want to do underutilization of your skills and resources. But that’s exactly what you do when you use the money to buy something that you don’t want.

You underutilize the power of money, the energy of prosperity by spending it on something not necessary and create a blockage to the path of enjoying something which is necessary.

Hence, if we are a bit aware of what we are spending on and it’s worth or not, we will be in a better state in Managing Personal Finance.

Another spending habit which can be dangerous most of the time is when you cannot control your desire to buy something for which you don’t have money. It gives rise to your debts – especially your short-term and high-cost debts like credit cards.

Taking a loan to acquire an asset is ok but it’s dangerous when you use the power of debts to buy phones, clothes and so on. You should use debt if you don’t have money to buy those without which you cannot live.

Debts can be really a powerful friend of yours provided you use it intelligently. 

Another way of spending which can be fatal is when you buy something, not on the basis of your needs but to show others. It may be an upgrade to your phone, an upgraded car where we go beyond the usage of the same.

For example, the objective of using your phone may be to call, text, click photos, shoot videos, managing your social profile and much more. And you bought a phone a few months back.

But, a new phone is launched within next 6 -7 months and you are so desperate to buy that model that you planned to exchange that phone for less than 50 percent of the value for which you bought it and end of the day, devalued the underlying value of your purchase. Most of these purchases are not utility based rather they are based on your show-offs.

It’s quite obvious that every upgrade will have some feature changes, but they are not some of those changes without which you can’t live unless and until there is some major issue to address which, the upgrade was done.

Using the money for your experience rather than what others will experience seeing you is always a better option.

Be proud of what you are rather than what you have.

4. Be Good with Your Numbers:

Your Personal Finance area or your finance is purely numbers driven. It’s always encouraging to know your numbers. When I am talking about knowing your numbers, I am referring to 3 things:

  • Pre – knowing your numbers– This is known as a budget as well !!!  Each and every time you purchase, you must make it a point you already have a well-drawn budget for that.

A budget can be weekly where you have a list of what you going to spend this week. Similar way the budget may be fortnightly or monthly as well. But whatever it be, you should have a budget of every penny you are spending.

It will help you always spend with a check to it and don’t overspend.

  • Recording Your Numbers –Next is whenever you are earning or spending on, you must have a record of it. It may be a mere notebook or excel sheet but the recording of every transaction you do financially is what is needed.

When you record your incoming and outgoing financial transactions every time, your subconscious mind will be aware of what exactly you are doing wrong or right with your finances.

  • Drawing Your Numbers – What I meant by Drawing your Numbers is deducing results out of your numbers. You can do it weekly, fortnightly, monthly or whatever it be, keeping in mind two things – 1. it should be done in the cycle you are earning (If you are earning weekly, then weekly and so on.) and 2. it should be done regularly ( if you are doing it weekly then you should do it  every week and so on)

5. Seeking professional support:

Another big mistake what normally we do is even if we know we are not having good knowledge in finance, we don’t hire someone to handle it.

It’s the same as an organization having a finance department. If you have not studied finance, it’s better to hire a Certified Financial Planner to plan your finances, savings, and investments. Paying for a Certified Financial Planner is always worth as it will ensure you have someone to see beyond what you can see and plan as per your goals and work with you.

Among these 5 steps which are the steps, you are already using?

Think about it. I don’t want to comment. Rather I will be happy if you start implementing all the steps that you are not doing right now if you find it worth and change the Economic Area of your life by Managing Personal Finance better.