How To Manage Your Own Finances?

During our school days, we were not taught about the importance of our own finance and how to go about managing it. We were only been taught about many different skills set depending on what courses that we chose to study to prepare ourselves to get a job in the society. Well, there is absolutely nothing wrong in getting a job for a paycheck every month and that is personal preference. The main point I want to talk about is managing our finances in life.

Different education certification give you different kinds of income and also depending on your working experience along the way. Some people are key appointment holders and their income is so great that they can afford to buy a car, go out party every Saturday night and also eat lots of expensive food. However, most people are earning slightly below average or just an average income. So, is it really true that only high income earners are able to and know how to manage their own finances properly just because they got more money? The answer is a no no, definitely not true at all.

Related article: What should you be really learning as a student?

No matter how big or small your income is, if you do not know how to manage your own finances properly, at the end of the day before your next pay day comes, you will always in need of money for the next month after month and more debts maybe accumulating. So that is pretty much dangerous when you slowly reach to your golden age of your life as you probably may not have enough money for retirement and pay for your medical bills.

 

What is personal finance?

It is defined as the management of money and making financial decisions for a person or family including saving, budgeting, investments and retirement planning. I found this definition on Google and is a standard meaning. Most importantly is to understand the definition.

 

Why managing your own finances important?

important

It is extremely important to know how to manage your own finances as it can affect your future in terms of your life planning. There are many reasons why managing your finances is important. I’m going to list out the 9 reasons below.

1. You will have a better preparation for your future plans.

When you know how to sort it out your money and plan how you gonna use it, you will feel more secured and prepared for future purposes as you know the importance having some spare cash with you to be ready in good use. For example, if you are planning with your girlfriend for marriage in 3 years time, you will definitely have to plan way ahead of your financial needs. To some people who don’t value the importance of managing their finance, they may probably have a hard time to save up for marriage and often find it not having enough money to save.

2. You will be aware of where your money is spent on.

You will be sharp at every spendings that you spent and know the reason why you are spending on certain particular things. You will also know how to distribute your money to be spend on and you will not definitely spend your money unnecessarily. This is actually a good habit and because of your awareness, this also leads to another reason at the third point.

3. You will prevent yourself from running out of money.

You will make sure that you will always have enough cash and in fact you will make sure you have some spare cash with you before your next pay day comes in. Then once your pay day is in, you are able to save up more by putting your spare cash into your savings account. It is important to always make sure to have some spare cash with you for sudden situation purposes. So don’t spend your money until nearly zero cash inside your bank account and desperately waiting for the pay day to come.

4. You will achieve your goals easier and faster.

This is very true if you are discipline well enough to manage your finances properly and not to touch your savings, knowing how and where to invest your money in, your goals that you set yourself will become more visible. Knowing the importance of it is the key to achieve it.

5. You will have money for emergency.

Yes, you will definitely set aside some money as an emergency fund. It is important as you will never know when you need it to tide you over or help your family members if they are in need of help. So, always have an emergency fund as one of your essential financial management plan.

6. You will know how much money you need for your retirement.

You will tend to think further and deeper about your golden age plan as you manage your finances properly. As we are getting older, we may tend to fall sick more often and eventually will reach an age of retirement. When we are retired, there will be no income and our years of savings become very important for survival. It is always better to calculate backwards of how much money you need it in your golden age and don’t depend on your kids to survive as your kids will definitely need a lot more money than you can ever imagine it.

7. You will know how to adjust your lifestyle according to your finances.

You know what kind of lifestyle that you want to lead and you will also compromise it base on your income limitation. However, if you want to lead a lifestyle that is beyond your income capability then you should seek to increase your income or learn how to earn more money for your side income.

8. You will ensure yourself to be financially debt free.

This is also very true as you know the importance of financial management and you will make sure you won’t get yourself in debt just for your own entertainment. Getting your priorities right is the key. If you do not have enough money to purchase a car then don’t buy. Nobody is telling you that you need to have a car for whatever reasons.

9. You will be aware of the importance of earning more money.

This one I agree too. The amount of money you earn every month is always fixed if you are working in a non sales kind of job and you will only be waiting for your performance bonus or annual bonus to save up more or to go for a decent holiday trip per year. As you know the importance of managing your own finances, you will tend to realise that having more money is necessary for many things that you planned in your life.

Related article: How to master the art of saving money as a student in Singapore?

 

When should you use your emergency fund?

The answer is during emergency like having a big illness or met into an accident. You got to be always prepared for such situations because we will never know when we will get to encounter it. Other than illness or accident, you can also use the emergency fund to tide you over during your mid-career switch and make sure your fund can last you at least 6 months and above as that will be a safe zone during your struggling period of your new career.

Related article: Can Singaporeans retire at the age of 62?

 

Steps to manage your own finances.

goal plan success

There are 4 helpful steps that you can do to manage your own finances.

1. Set goals.

Write down your goals that you want to achieve in terms of financially or aiming at getting what you want in your life. After writing down all your goals, you got to prioritise which one to achieve it first then eliminate accordingly. By having goals that you set helps you to kick start your own financial management.

2. Have a plan.

You need to plan on how to achieve your goals in order to have a better management financially. Create a plan for your goals and make sure it is measurable to execute it step by step. By having plans for your goals, you will tend to plan your spendings carefully which is really effective.

3. Follow through your budget.

After you have set your budget for your goals, stick to it throughout and don’t overspend your money just because of temptations. You need to get your prioritises right, be discipline and always ask yourself why do you want to achieve your goals to as to avoid yourself from being lose track.

4. Always stay out of debt.

If you get yourself in debt, it will be harder for you to achieve your goals and also disrupt your financial management as you need to keep paying off the debt, making yourself lesser money to save or invest. You need to know what you want and plan accordingly. Don’t buy things that are beyond your budget just because you want to get it instantly. Always remember to make sure that you always have enough money with you in whatever you do.

 

Conclusion

Overall, if you do not know how to manage your own finances or have not start planning on how to distribute your monthly salary, you got to start learning how to manage it by getting to know what you want to achieve in your life. If you do not know what you want to achieve, then start thinking about the amount of money you need for retirement and work on it. Life is short and before you come to realise it, you are already getting 10 years older. So start managing your finances now!

 

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