Personal Finance & Budgeting

Personal finance is a term which refers to the way in which money is handled by an individual or family group. It involves methods for budgeting and saving, planning for potential future life events (e.g. weddings), or potential problems (e.g. injury, health issues). When planning personal finances, an individual needs to look at all their income and expenditure, as well as any policies such as life insurance, and think about possible scenarios which may need to be dealt with in time. Personal financing often involves purchasing financial products, such as mortgages, house insurance, and possibly investments in company shares.

There are a few crucial areas which ought to be included when looking at personal finance. The first of these is expected cash flow; even if you cannot be accurate in these figures, you need to have some ideas about what your income is likely to be on an average week, month, and year. You should make clear what areas the different amounts are expected to come from, so you can easily identify your different incomes and make any adjustments necessary.

You should also make a list of expected expenditure, again with estimated figures for the different outgoings, and tot up the totals for both lists. Remember to include things such as taxes, rent, living costs, and a rough figure for house repairs/car payments that you may need. This will allow you to compare your income and costs, and then make a financial map or plan for what you can put into savings, and what money you can dedicate to investments.

One potential budget method is 50/30/20, which allows 50% of your income for living expenses, such as food, rent, etc.; 30% for luxuries such as eating out and day trips; and 20% to go into savings for emergencies, reducing debt, and a retirement fund. If this particular budget doesn’t suit you, there are many apps and programs designed to help you budget your income and put aside some portion for emergencies. Sticking to a budget can be hard, but the work will pay off in the future.

Furthermore, carefull budgeting allows you to utilize debt and turn it to your advantage, purchasing assets which will pay themselves off over time (e.g. a house) and managing your credit card use to build a credit rating without letting your debt get out of control. Paying your bills on time is a good way to keep your credit rating up, and also to make sure they don’t get add up to large amounts over the course of a few months.

Budgeting lets you take charge of your finances, and will allow you to spend money on luxuries without feeling guilty and without overspending. Treating yourself occasionally and in accordance with a plan means you are less likely to splurge and cause yourself financial difficulties. Budgeting also means that if an emergency comes up, you are less likely to have money worries added to the stress of the situation. Financial planning will let you lay out money in investments, building up your financial stability and securing your future.

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