Personal finance is an important element of daily life and is something everyone should pay attention to. The issue is that it can also be overwhelming; there are so many things to consider, from taxes to retirement savings, that getting started can be tricky.
Personal finance isn’t rocket science, but it does require some effort to stay ahead of the curve. If you want to take control of your future, start by taking charge of your current situation. Here are five simple steps to get you moving in the right direction.
What Is Personal Financial Planning?
Personal financial planning (PFP) is the process of helping individuals manage their personal finances effectively. PFP involves looking at your overall financial position and making sure you have adequate resources to meet your goals.
It also means being aware of potential pitfalls and ensuring you take steps to avoid them.
This includes setting aside money for emergencies and long-term goals, keeping track of spending and budgeting, and managing your investments. The main aim of personal financial planning is to help you achieve your financial goals and live comfortably within your means.
Top Tips For Financial Planning
Here are our top five quick tips for your personal financial planning – read on for all you need to know!
- Get A Handle On Your Spending
The first step towards managing your finances is understanding where they’re going wrong. This means knowing how much money you spend each month, and what areas of your budget are being stretched. To get started with a budget, you need to begin by creating a spending plan.
You can create a spending plan by noting your monthly income and then making a list of your monthly expenses (including rent or mortgage payments). Subtract the expenses from the income, and then add up how much you have left over at the end of every month. This will give you a clear overview of your financial situation and will allow you to make decisions based on the cash that you have left over.
- Set Up An Emergency Fund
Having enough cash saved up to cover at least three months’ worth of living expenses is essential if you ever find yourself out of work or facing other unexpected costs. You don’t have to save a huge amount of money to set one up, either. It’s best to keep this fund separate from any regular savings account, as it will help you avoid dipping into your emergency funds when you really need them.
No matter how tempting, avoid dipping into this emergency fund unless it is a genuine emergency situation – such as losing your job or having your car break down.
- Pay Off Debt
Debt is a major cause of stress for most people, which is why paying off credit card debt quickly is such a good idea. Not only will it free up cash for more important things like saving for a home deposit, but it’ll make you feel better about your finances too.
There are two main options available when it comes to tackling debt: using a debt consolidation loan or paying off debts individually. Both methods have their pros and cons, so it’s best to weigh up the options before deciding which route to go down.
You can either choose to tackle your debt by starting with the highest amounts and working down, or by starting with the smallest amount and increasing the payment amount until you’ve paid off the entire balance. Whichever method you decide to use, remember to stick to your repayment schedule.
- Save For Retirement
Saving for retirement is another area where most people fall short. While it may seem daunting, starting early is actually easier than you think. There are plenty of ways to save for retirement without putting your life on hold. The key is to start small and build up gradually.
If you’re still young, consider contributing to an employer-sponsored pension scheme. These schemes usually offer tax breaks and often come with matching contributions from your employer. Alternatively, you could try opening a self-managed superannuation fund.
- Review Your Insurance Policies
Insurance policies are there to protect you against risks in case something goes wrong. However, many people fail to review their insurance policies regularly, meaning they miss out on discounts and benefits.
A quick online search can be all you need to ensure your current policy covers everything you need. If you do want to change insurers, check whether you qualify for any special offers, and remember that many providers will offer a deal or incentive to stay with them if you mention that you are thinking of switching to a better deal.
What Are The Benefits of Personal Financial Planning?
The benefits of personal financial planning include:
- Secure Long-Term Financial Health
One of the main benefits of personal financial planning is that it helps you secure long-term financial health. By setting aside some money each month towards your future goals, you give yourself a head start over those who aren’t prepared.
- Get Ahead Of Unforeseen Costs
Another benefit of personal financial planning is getting ahead of unforeseen costs. When you know what you need to pay out each month, you can budget accordingly and plan ahead for anything that might pop up along the way.
This can also reduce the need for short-term loans – for example, CreditNinja offers California loans that are perfect for emergencies, but good planning reduces the need for reliance on these products.
- Improve Your Credit Score
A third benefit of personal financial planning includes improving your credit score. This is because having a clear monthly budget means you won’t spend beyond your means. It also shows lenders that you’re responsible with your spending and able to handle unexpected expenses.
- Increase Your Savings Rate
Finally, personal financial planning increases your savings rate. Because you have a set monthly income coming into your account, you’ll find it much easier to put away extra cash each month.
Final Thoughts
Learning how to plan and organize your personal finances will provide you with the freedom to make decisions about your future. You don’t have to worry about being caught off guard by unplanned costs or bills. Instead, you can focus on other important aspects of your life, and rest assured that you are financially secure.
