How to Start with Managing Personal Finance

If you ask a wealthy person how much money he/she needs the reply would be – Just a little bit more – We never find there is enough money. Problem is, having money does not end financial concerns. Managing your money effectively, does!

Money management skills and good financial practices are needed no matter how much or how little money you have. While it’s difficult to think about planning for the future when pay-day is a week away and your wallet and bank accounts are empty, it pays later if you plan and learn to manage your money carefully.

Managing finance will help you:

• Know what you want to do with money.
• Know where your money goes.
• Know how to save money for your goals.
• Plan your spending in advance.
• Know exactly where you need to put control.
• Organize your financial records.

people get caught up in thinking they have to do all these things the right way making managing personal finance too complicated to start with. Getting started is perhaps the most tricky and complicated part of the journey.

In reality, actually you can start at any point and finish all the necessary tasks comfortably. Consider managing finance as a circular list of tasks where you can start at any time, at any point and still cover the entire journey.

I am sure you manage at least some part of your finances. You may have budgets, bank accounts, investments, insurance policies and tax codes. You may have sufficient knowledge to manage everything individually. Real problem comes when we need to manage the whole set as one single entity.

Financial failures mostly do not arise from the lack of knowledge or skills, they come from lack of discipline and lack of organization and prioritization of financial tasks.

Is there any set rule for managing personal finance? No!

Managing finance can be done in many ways. For some, budgets work best for keeping healthy cash flow, keeping expenses lower than income. For me, setting money aside for investment  before spending works best. I don’t budget, I enjoy the independence of spending money as per our wish, making sure some part of money is already invested. (I save 50 – 60% of my income). So our optimal ways of doing things may not match.

Similarly, as a debt solution, some prefer saving up an emergency fund first while others prefer debt reduction first before starting with saving money. Some would say pay off mortgage before saving money for other goals, Others would say go for the investment and pay only the monthly minimum mortgage due.

Now that we saw there’s no set rule, you can start any time. But, Where should you start?

Earlier we discussed that no matter where you start, you will cover the entire journey. Still, in order to continue the whole journey you need to pick up a starting point that you are most comfortable with. This can be the biggest challenge.

My advice, if I may, is to begin where you are: Find something you’re already good at and enjoy doing and then apply it to your financial life.

Getting started with financial management

Learning personal finance to a great extent is like learning to ride bike, you fall, you get cut and bruises (although now its difficult to fall off from the bike-technology!) but, at the end you do learn riding. All you need is courage to get started and a will to continue.

A small step – you can’t completely overhaul your financial life in one day. Choose a small step in terms of effort, time and money required. you can start by just saving $100 per month in a saving account.

Comfortable – You should start with a familiar skill. If you are not conversant with spread sheets or basics of budget, no need to take those on as a first step. Start with known things. A compound interest may be? It can calculate your total saving at retirement age, start with that if you can.

Pleasurable – Its important that you start with something you enjoy doing. If you get bored you can’t continue for long.  If you enjoy mathematics, try to start with calculating how much money you’ll need for retirement.

Should have a result – Set a goal which you can easily achieve. Repaying 5% of your debt by cutting cost can be a very tangible and achievable goal. Where as, getting out of debt is a very bad goal for this early stage. The set back can derail your journey. getting out of debt is one of the ultimate goals of managing personal finance.

Do not look for result immediately, a sustainable result comes only after years of financial practice and self-discipline.

In this first stage you’ll mostly need the support from others since you’re venturing in to a new territory and learning things on your own. In later stages these skills will become habits, you can go on doing same stuff again and again making it almost effortless later.

Saving money and paying off my debt in full have become my habits now. I don’t need to exercise self-control each time I am out shopping.

I can’t recall exactly when I took my first step. I am fortunate to have teachers like my parents.  Judging my parents, I am probably a saver at birth. It is in my gene to live below means. Any money I earn, I first look for ways to invest it, then I start thinking about life’s other needs that can be fulfilled with the money. More about my upbringing here.

All that I learned in personal finance, I put together in a list of 50 personal finance rules. This list helped me immensely in managing my finances. So far we avoided debt throughout the life. We are on-target for our first mortgage free home in a couple of years.

I discovered that I had the power to control my personal finances since my childhood. Still, I made mistake, without knowing much about the stock market I started trading stocks, and one very bad call stripped me off a big sum during 2008 market collapse.

Since then I have become wiser. I have become an investor rather than a trader. I have adopted “slow and steady wins the race” approach in my personal finance. This approach works best for me. I also rely heavily on automating certain tasks like bill payments and investments.

I encourage you to start with your journey in personal finance, you will find it fascinating and exciting. Once you get started things would become clearer and easier to understand and manage. Set back would be there, but just don’t deviate from your path, once started. I encourage you to be better at managing your own finances.

Readers have you started? If yes, which stage you are in? Want to share your experience here?