A Guide to Successful Personal Finance Management

Personal finance means more than paying off your debt or saving for retirement. It’s a 360-degree view of your overall finances for today and the future, as well as the protections you have in place should a crisis occur.

So how do you successfully plan your personal finances? Here are our top 8 ways to get your finances under control.

  1. List your goals

You can’t manage your personal finances if you don’t know what you’re planning for. What are your goals or intentions? Think about the next year, 5 years, 10 years, and beyond.

Here are a few examples. Do you want to save for a house, go on vacation, or retire early? Everyone has their own goals – there’s no right or wrong. List them out and prioritize them in order of importance.

  1. Look at your Income and Expenses

You can’t achieve your financial goals unless you know how much money comes in and goes out each month. List each out and see where you stand. Are you overspending? If so, find ways to cut back.

Are you saving enough? Look back at your goals. How much do you need to save each month according to each goal’s timeline? Is it achievable? If not, figure out areas you can either cut your expenses or increase your income (side gigs are great for this).

  1. Make a Budget and Stick to It

Budgeting is like a map for your money. It needs direction. It gives you peace of mind too, knowing you can pay your required expenses as well as enjoy life’s luxuries.

There are many budgeting plans to choose from, including the 50/30/20 plan, envelope budget, and zero-based budget.

  • The 50/30/20 plan is good if you can keep your spending within certain parameters. With this budget, your fixed expenses shouldn’t exceed 50 percent of your income, variable expenses or wants should be less than 30 percent, and 20 percent of your income should cover your debt payoff and savings.
  • The envelope budget is good for those that can’t control their spending. Rather than broad categories, you budget for each category you spend (housing, transportation, food, etc.). You put the allotted amount in each envelope and once you use the funds up, you’re done spending in that category for the month.
  • The zero-based budget helps those who can’t save regularly. It gives every dollar a ‘job’ which should include short-term and long-term savings. You can assign a specific amount to your ‘wants’ but make sure there’s room for savings too.
  1. Save an Emergency Fund

Before you fund any other goals make sure you have enough saved for an emergency. Ideally, save 6 months of expenses in your emergency account. Keep it in a high-yield savings account or any other account you don’t have easy access to so you don’t spend it.

Reserve this money for things like a broken water heater, a medical emergency, or unexpected car repairs.

  1. Set up Automatic Savings

It’s human nature to ‘pay yourself’ last. You pay your bills, spend on your wants, and at the end of the month probably find yourself with nothing to save. Instead, make it a regular part of your budget. Just like you set up automatic payments for your mortgage or car payment, do the same for your savings.

When you automate your savings, you take the thinking out of it. This increases your chances of accumulating a decent balance and saving for the future, whether short-term or long-term.

  1. Pay off Debt

Any interest you pay on debt is an opportunity cost of the money you could have invested elsewhere. If you’re in over your head in consumer debt (credit cards, personal loans, etc.) use one of the debt payoff plans, such as the debt snowball or debt avalanche method.

Both methods offer a strategic way to pay off your debts. The debt snowball focuses on your debts in balance order (paying off the lowest debt first) and the debt avalanche focuses on your highest interest debt (paying off the highest interest debts first).

  1. Watch your Credit Score

We often get so comfortable in our finances that we forget to check our credit reports. Every consumer has free access to each of the three credit reports here. Pull your credit report at least once a year and check for accuracy.

Fraud, human error, and your own financial blunders can damage your credit score. Figure out what you can fix/change to improve your credit score. If you have good credit, you’ll get better rates and terms on loans, insurance plans, and even cellphone plans.

  1. Learn to Invest

Achieving financial freedom requires taking a few chances. Investing seems risky, but when you do it right (and do your homework), it’s empowering.

Leaving your money under your mattress or in your savings account leaves money on the table. Explore your investment options, whether CDs, ETFs, stocks, bonds, or even real estate. Diversify your portfolio and let your earnings grow. Compounded earnings will quickly become your best tool as you see your money grow without you lifting a finger.

Start your Financial Planning Today

It’s never too early or too late to start financial planning. Whether you’re 20 or 60-years old, start planning today. Start by looking at your finances – where do you stand?

If things seem unsteady, create a plan. What can you fix that would have immediate positive consequences? What habits can you change over time?

Financial planning is a lifelong event with speed bumps along the way. If you hit a roadblock, stop and reassess. Figure out what needs to change and get yourself back on track. There’s no right or wrong answer or one-size-fits-all approach.

Take it one step at a time and you too will get control of your finances.