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Tips for Personal Finance – A Beginner’s Guide

How To Manage Your Money - A Beginner’s Guide

Very few schools teach these fundamental skills of managing your money and keep your finances on right track, how you manage your income, saving and expenses can have a profound impact on your life.

You have been learning some basic maths while growing up, but most people out there lack the ability of basic financial management and budgeting. Skills like creating a budget, investing for future or most of all how credit card works are startlingly rare.

This guide is intended to serve as basic dose of financial discipline that  will spare you and your family from  future headaches and lay the foundation for good spending habits and sound financial principles.

How To Manage Your Money - A Beginner’s Guide
The Basics of Personal Finance

Managing your finances is a number game, juggle well with numbers and you are on right track. The basic principle is same as 1+1=2, i.e. if you make X amount of money and your spending is Y amount of money, then it’s exigent that Y should be less than X.

However, there is much more to it apart from spending less than your income, your finances also get affected by your psychology, habits and the values you choose to live by. Or simply saying your mindset matter as much as the math does.

1- Spending < Earning : Spending more than you earn, will land you up in a spiral of debt that’s hard to walk away from. If you spend exactly as much as you earn every year, you’ll never be prepared for emergencies or major life changes.

Spending less than you earn allows you the freedom to save, to prepare for the future, and deal with the inevitable crises that life throws at you. The bigger the gap between your income and your spending, the better.

2- Future Planning : This doesn’t just mean retirement. When a store offers to let you pay off some gadget in 6 months with no interest, you need to know you can pay it off, or avoid that deal.

Establishing an emergency fund will allow you to deal with unexpected car repairs or medical bills. Having a retirement plan will ensure you have income when you’re unable to work anymore. Your finances should always look forward beyond the current month.

For E.g. Create a fund for unexpected expenses, once you’re debt free. A month’s salary is a good start and while it may take a while to build up, it’ll give you a real sense of security once you have it.

How To Manage Your Money - A Beginner’s Guide

3- Circulate your Money : Don’t just sock all your cash in the vault of the bank, the rate of return in a bank is always less than the rate of borrowing from the bank, means your money will not be inflation adjusted and it will lose its value over time.

Circulate your money, invest in something of real value, like an asset or property, or gold or even start a business. Properly invested money earns more money over time, sometimes it’s not something tangible at times you have to invest in yourself like get some training to polish your skills.

4- Small Savings Matters : Invest some money each month for your financial goals, like saving for your retirement and your children’s education. This excludes your employer’s pension scheme or your own retirement investments.

5- Credit Card Dilemma : Paper currency is obsolete and has been taken over by plastic money, leaving you free from carrying cash, but this ease comes with a tendency to spend more and usually spending goes beyond control if you do not keep track of your spending. Beware !

Also, most people are unaware of the fact about how credit card works and how issuing bank makes money from consumers’ lack of knowledge about interest/charges calculation, this calculation may vary from bank to bank , but basic idea is simple bank will not lend you money for free, if you will not re-pay in stipulated time, you will pay charges.

The trickiest part is how the charges are calculated, it might be an addition to your knowledge that most banks calculate charges on the total billed amount for that period. For E.g if you owe $2000 to the bank, and you pay $1999, within that billing cycle, the bank will charge you for the whole $2000 again in the next billing cycle.

Also, “Minimum amount due” is only the interest of the total spending, it will not reduce your actual payable amount, so rule of thumb says if you keep on paying minimum due amount, you will pile up the interest with original payable amount unchanged.

How To Manage Your Money - A Beginner’s Guide
Although financial circumstances vary from one individual to another, but the key factor is to be smart in your financial planning and keep adjusting your self with the factors which affect financial management, What your grandparents did may not work for you. There will always be newer, better tools to manage your money.

However, spending less than you earn will always be beneficial. Investing your money will always be better than doing nothing with it. And planning for the future will always be better than blowing your paycheck as soon as you get it.

  • Yasir Jawed

    Good and laconic piece of writting.. but this spend less thn you earn phrase always seems to appear a big dilemma for me, its more like a glib… i personally believe its a very subjective thing which is surronded by many “ifs”and “buts”…some time spending more thn you earn is better because this spending<earning does not account for the opportunity cost.that is something we really dont take care of more often, cost of things or values u just missed to stick with that phrase… satisfaction or convenience yield of having that thing which no one have before u … or its not even bad to hang out at the places where u can find people who can motivate u … rather just saying spend < earn one should simply look for the ways to Earn More….

    Second aspect is the economic condition of the country you live in… like in pakistan how can we expect to save or spend less where the per capita income is less thn your per capita expenditures?? Where every citizen is in the shackles of foreing debt.. where we use to hear every morning that the stock market is reaching higher highs and yet you see no improvement in the living of poor or a common man..

    As the article said be smart in financial planning.. one must have to identify the needs because investing in alternative investments like property or gold or any real assets require a long investment horizon and diligence to get the maximum return.. u may invest in these things if you dont need liquidity in near future …

    Finally, my world of opinion may differ from others, just testing my opinions…

    • Ammar Khalil

      Agreed, but the point here is not to discuss the economy of the country, as the title says its about managing your finances, you will only manage when you have it.

  • Safa Danish

    What about poor people ?

  • Shehzeen Ammar

    Ok this seems workable.. but still there are people who fail to manage their finances in a convenient way.. they spend all the money they earn… and most people belong to middle or lower middle class families, are so much caught into their day to day expenses that they hardly think about savings.. and working hard to make ends meet.. but anyways if some one is really willing to get their hands on savings, they can work on it.. all in all beneficial write up 👍🏻