One of the hardest things for many people to learn is how to manage personal finances. But it is important to learn how to manage personal finances because the alternative is chaos–never knowing where your money is going, never knowing how much you have left, never knowing whether you can pay your bills and so forth.
It all begins with goal setting
It is almost impossible to get a handle your personal finances until you set some long-term goals. If you’re deeply in debt, your primary goal may be to get out from under it. Or if debt isn’t a problem, your primary goal might be to buy your own home. The important thing is to set goals that will make you feel happy or fulfilled as you achieve them.
When you complete your list of goals, the next step is to set priorities. In other words, which of your goals is most important to you? If your goals were to own your own house, pay the kids school tuition and buy a vacation home, which of these should you tackle first? You obviously can’t achieve all of them simultaneously but you can achieve your most important goal, then move on to your second most important and so forth.
Create a budget
Once you understand what your financial goals are, you can create a budget to help you achieve them. For example, if your primary goal is to get out from under your debt, you will need to set a budget that will allow you to pay it off as quickly as possible–even if it means making sacrifices in other areas.
There are three steps to creating a workable budget. Step #1 is to identify how you’re spending money now. You should get a notebook and start writing down everything you spend every day for a month. That will give you a good idea as to where your money is going.
Step #2 is where you evaluate what you’re spending now and then set goals that can help you reach your long-term objectives. As an example of this, if your primary goal were to buy a house, you would need to figure out how much you would have to save to get the down payment you will need.
Track your spending
Third, you will need to track your spending to make sure it stays within the guidelines you established in step #2.
That’s the secret to manage personal finances. As you can see, it’s not all that complicated. The tough part will probably be step #2, where you have to determine where you will have to make cuts in your spending to achieve your goals. But once you get past that step and can see how you’re moving towards achieving your goals, you should feel pretty good about your life –and with no more financial chaos.