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Personal Finance Management

The In’s and Out’s of Personal Finance Management

What is Personal Finance Management?

We all manage a myriad of tasks on the day to day. Work responsibilities, chores to keep a household running, and familial obligations are all important parts of our daily life. However one of the most important components that runs through all of these tasks is personal finance management.

By definition, personal finance management is the act of managing your money, along with savings and investments to achieve goals and maintain financial stability. Personal finance management encompasses many different money-related aspects of one’s life.

Your personal finance management skills are incredibly important. According to a study by U.S Bank, only 41% of Americans use a budget. This number is staggering when you consider that utilizing a budget is one of the most effective ways to stay on top of your expenses and achieve your financial goals. In addition, Time Magazine reported that only 64% of Americans have enough savings to readily cover a $400 emergency cost. Budgeting, savings, investing and several other of these concepts all tie into personal finance management – something that many Americans are lacking.

If you are looking for a solid understanding of the aspects of personal finance management and their long-term effects keep reading for a better grasp of these invaluable concepts.

Aspects of Personal Finance Management

Personal finance management is a multidimensional concept, with many important aspects. All of these aspects work together to provide you with a solid financial ground for your life. Some of the most notable aspects of this concept include:

  • Budgeting
  • Savings (both short term and long term)
  • Debt management
  • Investing

As previously discussed, budgeting is one of the most useful and underutilized tools that Americans have at their disposal when it comes to managing their personal finances. While no one of these concepts is more important than the other, budgeting is the first place to start when you are looking to manage and master your personal finances. Regardless of where you are at in the budgeting process, there is an entry point for everyone.

If you are completely new, you will want to start out by tracking and analyzing your monthly spending habits. Consider using a budget tracking app such as the Sofi Insights app or the YNAB (You Need A Budget) app. Once you have a clearer understanding of how you are spending your money each month, you can make adjustments accordingly.

If you already have an established budget, it is important to remember that a budget is an ever-evolving aspect of personal finance management. You likely will be earning more income the longer you are in your job, and therefore have a greater capacity for savings. Likewise, you may have to look at your entertainment budget once you purchase a home, have a child or are saving for a wedding or other large expense. Your budget is something that grows with you!

Another important concept of managing your finances is savings. While budgeting encompasses how much you can attribute towards your savings, it is important to determine both your short-term and long-term savings goals. Generally, short-term savings goals are financial hurdles you would like to conquer within the next 5 years. Examples of short-term savings goals could be to pay off debt, save for a vacation or to increase the funds available in your emergency account.

On the other hand, long-term savings goals are financial feats that may be more than 5 years out on the horizon. While this can seem very far away, it is important to have an understanding of what these goals are so that you can begin to prepare. Examples of this can include saving for a forever home, paying off hefty student loans or perhaps curating a college fund for a young child.

To continue on, debt management is another key concept of personal finance management. Debt management is harnessing and getting a solid control of the money that you may owe. Whether this is for student loans, credit cards or personal loans, debt – particularly high interest debt- can be all-consuming. By continuing to pay down your debt, and perhaps even exploring a debt consolidation loan or equity loan from LoanMart, you will increase your credit score and have more disposable income available.

Finally, investing is a crucial component of personal finance management. Many people can feel intimidated by this concept and may not know where to start. Investing is important because this is a tool that can help you to build wealth. If you are looking to start investing, some light research on the current market and trends can be extremely useful! One of the first steps you can take in investing is to open up a brokerage account. You can do this by working with an investment firm such as Fidelity, Charles Schwab or Edward Jones to name a few. You may also want to consider some of these book titles that discuss investing for beginners.

Effective management of this range of components helps to ensure one’s financial wellbeing. The earlier in life that you can get an understanding of and maintain a solid grasp on these concepts, the more you are contributing to your overall financial health.

Long-Term Effects of Effective Personal Finance Management

If you are wondering when the best time to get started with your personal finance management is, the answer is simply: now. A solid understanding over one’s finances has many advantages, including:

  • Financial stability
  • Retirement readiness 
  • Opportunities and flexibility
  • Legacy and generational wealth 

While preparing for retirement might seem like light-years away, the best time to start saving for your retirement is in your 20s! By saving gradually as early as you can, this can help you to establish a solid retirement fund and avoid any stress related to saving for retirement later in your career.

In addition, a solid grasp of your personal finance management can lead to financial stability and more opportunities. If you are preparing for your short-term and long-term savings goals now, you are avoiding feeling unprepared when it is time to make a student loan payment or when you start looking to purchase a home. Financial stability leads to more and more opportunities for finance savvy individuals! Furthermore, mastering your finances now will also allow you to not only provide for yourself, but also to provide for future generations to come!

In a recent study reported on by CNBC, 77% of Americans currently feel anxious over their financial situations. Oftentimes, anxiety can lead to avoidance, and many individuals tend to push off finance-related tasks.

However, our approach should be the opposite! By getting a solid understanding of your finances now, you can work towards feelings of control that will greatly reduce any finance-related anxiety.