What Is Personal Finance?
Personal finance refers to how you manage your money, including your income, expenses and savings. When you put an effort into managing your personal finances, you have a better grasp on where your money is going and what changes you can make to meet your future financial goals.
Setting Your Goals
Personal finance is, well, personal. Though certain aspects of personal finance are generally applicable to everyone's financial life, you choose which aspects are most important to you. Kiplinger recommends choosing financial goals that you're excited about. For example, just about everyone needs to include the costs of food, clothing and shelter in their budgeting process. However, where you live, whether you want to eat out regularly or save money by eating in, and what types of clothes you buy are up to you. In addition, you might prioritize taking a family vacation every year, while someone else might view saving for tuition at a private college as a more important priority.
Creating a Personal Financial Plan
You're much less likely to attain your financial goals if you don't make a plan in advance. Plan how you're going to spend or save your income. If you've been tracking your spending for a few months, you can estimate how much you spend per month, on average. If not, use your best guess and adjust as needed in the future. When the money is earmarked for a specific purpose, you're less likely to fall off track by making unnecessary purchases.
Start Planning Now
When it comes to personal finance, the sooner you start planning, the better. Depending on your goals, it can be difficult to see why you need to rush. For example, if retirement is 30 or more years down the road, what's the hurry to save for it now? First, the longer you have to save, the smaller amounts you need to set aside. So, if you want to save $300,000 over 30 years, that's $10,000 per year. Cut your savings time to 10 years, and you have to save three times as much per year. But, there's more: Because of the power of interest compounding, money you save today begins growing over time so that you save even less.
Personal Finance Tracking
Setting personal finance goals is a great start, but to achieve your dreams, you have to follow through. This means monitoring your income and spending to make sure you're staying on track and following the financial principals you've decided are most important to you. When it comes to tracking, consider financial software like Quicken to manage your accounts and let you know how you're doing.