The concept of Personal Finances is actually pretty simple. Finance is the study of everything that has to do with investing. But this does not refer to money only since it also includes every asset and liability and how they are managed over time. Personal, on the other hand, means that it is applied to oneself.
On the Finance topic we have a LOT of sources of information. You can quickly search any finance related topic on Google and you will instantly find whatever it is that you need. When you examine the personal part though, it is a little different since it involves knowing yourself as much as possible. It is not good if you think something like “I will save 50% of my monthly income for the next 6 months” and then you spend a lot of money on the first thing you come across. You have to ask yourself a few questions and be completely honest in order to elaborate a perfect plan.
Knowing yourself takes time
You have to consider that this is something that takes time since it is a constant process that will develop after making mistakes and learning from them. You can’t expect to fulfill all your goals on the first try, and that is totally fine.
Also, as time passes, your goals will most likely change. If you are in your 20’s, your first priority may be to travel around the world. at age 25 you may want to save money to buy a house and start a family. Or maybe you have children and you want to make sure that they have a good college education when they grow up. If you know yourself you will be able to adapt your habits to the goals you have.
Questions that you can ask yourself to start a plan
These few questions will help you to start making a plan to manage your personal finances; remember to be completely honest, otherwise the only one you will be affecting is yourself:
- If I set a goal, am I able to fulfill it without failing? If you are the kind of person that promises to lose weight as a New Year Resolution every year but you end up worse than when you started, you already know what to answer here. But hey, at least you know what you need to work on.
- How much money am I actually able to save up monthly? This amount is the result of deducting your monthly expenses to your monthly income. But remember to also consider expenses for things that you like to do. Discipline also means to have fun with a set budget.
- What would I like to do/have 1 year from now? 3-5 years? 20-30 years? This is one of the most important questions since this will give you an idea on how to elaborate your financial plan for the next years.
- What do I plan on doing with the money until each goal is reached? This is where you will decide HOW and WHERE you will invest your money according to each goal you have. Short, medium or long-term goals will allow for different types of investments.
These questions above can be used as a reference by someone who actually wants to start planning to have healthier personal finances.