Managing personal finance should be at the top of everyone’s priority. Making millions of dollars does not insulate anyone from insolvency. According to Money Crashers, a United States of America based financial advisory firm, “between 2008 and 2009, bankruptcy filings for those with more than $1 million in assets increased by 73%.” Sports collaborated this with a startling revelation that 78% of former National Football League (NFL) players go bankrupt within two years of retirement.

It is no longer news that as many companies are filing for bankruptcy, several countries especially in the euro zone are eagerly seeking for bailout. There is the need to start taking control of one’s financial life. To achieve this, one needs to carry out specific tasks. This can be very rough, particularly when the take-home cheque is lean and savings wallet is shallow. By making the right choices, one can save a little money every month no matter how insignificant the monthly income is.

Decent practices for managing your personal finance can be realised in very modest ways:

Write It Down
According to Michael Collins, professor of family and consumer economics from the University of Wisconsin, “the most important step is to write it (expenses and income) down. It is important to know what you are currently spending to find ways to reduce spending and balance your budget.” Once it is on paper you have a much better sense of how and where the money goes.

If you find that your expenses are somewhat a threat to your income, you can take steps to develop a spending plan and move towards balancing your budget. Begin by listing your expenses, starting with expenses that provide basic needs for living. Some of these are fixed such as rent or mortgage payments, car payments, or instalment loan payments. Some are variable, such as clothing or consumer goods.

Cutting Back Expenses?
Imagine how easy or hard it would be to give up cable TV, eating out or even a second car. It is essential to involve family members in the decision-making process. The whole family needs to be on board. The new spending plan will be more successful if family members are part of the decision-making and planning. They will then understand the need to make the tough choices.

The next step is to realistically analyse your life cycle and deal with the common fear factors.

The Fear Factors

Age
Security of employment
Number of dependants
Sources of investment capital
Time and rigor taken to accumulate capital
Possibility of replacing capital from other sources
Business cycle

Strategies for Managing Personal Finance
Track your monthly spending: Many people do not know how much they spend each month on food, clothing, housing, or entertainment. Whether you are paying with cash, a debit card or credit card, total your expenditures at the end the month to gain a better picture of how you are spending your income.

Develop a household budget you can follow: Using the data you have compiled by tracking your monthly expenses, develop a realistic budget so that it is easier to live with. Track how well you follow it each month –that means continuous tracking of your monthly expenses.

Be sure to budget for savings: Your savings are a Rainy Day Fund, which is important when unforeseen expenses or emergencies arise. Be sure to budget part of your monthly pay cheque for deposit into a savings account –ideally, at least 10% of each pay cheque. If you find or earn extra money, put that away in a savings account too.

Pay your monthly bills on time and avoid late charges: Take inventory of your regular monthly bills and make reminders for yourself on when each bill is due. That way you can avoid costly late fees, which can also damage your credit relationship if you have one. The best approach is to pay bills as soon as they arrive.

Take advantage of free money: If your employer offers a contribution match for retirement savings or heath savings accounts, be sure that you are contributing enough to obtain the maximum match amount. Otherwise, you are missing opportunity for free money. Maximising your contributions can lower your taxable income.

Use the best financial institutions: Millions of people still do not rely on traditional banks or financial institutions to manage their money. However, before you open a current and/or savings account with a bank, be sure to research whether there are any hidden charges and fees for their services before choosing the institution.


Manage Your Investment Carefully

Keep your money safe: Put your money in safe investments such as government securities, fundamentally sound long-term stocks, and properly valued properties. You can also invest in other money market instruments like Commercial Papers (CPs), Bankers' Acceptances (Bas), and Guaranteed Funds.
Reduce debts: Except you can get a very favourable interest rate, debt is bad at this time. Try to reduce your debts or ensure that you have higher returns from your investments than the cost of debts.
Raise cash: If you have ways of making extra cash, do not hesitate. There will be huge investment opportunity for anybody with cash. You may have to sell some things you do not need to make extra cash.
Hire a financial planner/manager: Depending on the size of your investment portfolio, it helps a lot to hire a financial planner/manager. Your financial planner/manager will help you to identify other investment opportunities, ways of reducing transaction costs and protect your investments.

SOURCE: Finintell Magazine

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