Posted on August 21, 2011 |
Effectively managing your personal finances begins with understanding debt. Debt is anything you owe ? student loans, auto loans, credit card debts, mortgages ? that have a fixed monthly payment. So-called ?good? debt is any debt that has a long-term value, such as a mortgage, or any debt where the usefulness of the purchase lasts as long, or longer, than the repayment of the debt, like a car or some electronics. Understanding debt and how it effects your personal finances can keep your financial life on track and healthy.
Most folks get into personal financial trouble by allowing debt to get out of control. Their payments swallow up too much of their monthly income, or end up lasting far longer than the life of the goods purchased, so that they spend years paying off a dinner and a movie with some girl they can?t remember. Out-of-control debt is the number one reason clients state for seeking credit counseling. So, the first thing to effectively managing your personal finances is to understand debt, handle it responsibly and avoid its pitfalls.
Another step to effectively managing your personal finances is to prepare a budget and use it. To do this, you first have to know how much money is coming in and how it goes out. Tracking expenses for a month or two (a typical, ordinary month, not around a holiday or period of illness or injury) will allow you to get a long, hard honest look at the state of your personal fortune (or lack of one, as the case may be.) Then, once you know how much you?ve got and where it all goes, you can prioritize your spending. Most personal finance coaches and counselors will tell you that your biggest expense should be your living expense ? mortgage or rent ? followed by travel and transportation (car loans, fuel, insurance, bus, train and taxi fares, etc.) These two should take top priority because you must have a place to live, and presumably you are using that transportation to travel to and from some sort of employment allowing you to earn the money you?re now spending. Next are utilities and groceries, because you have to eat and keep the lights, gas, water and phone working. What you have left over is your ?disposable? income.
Disposable income is the money you have to save, invest and spend. Healthy personal finances always include some sort of savings plan. Why? Because you may not always be in the rosy situation you are in now and an emergency fund comes in quite handy then. A savings account of some sort also allows you to purchase those big ticket items that many overload your credit cards , like stereos and vacations. Think of it as paying yourself twice, once when you put the funds into the account and again when you withdraw them later.
Managing your personal finances isn?t that difficult if you control your credit spending, stick to your monthly budget and follow some sort of savings plan. Having healthy personal finances is almost as important as having a healthy body and mind!
http://www.consolidatedcredit.org is a credit counseling agency that helps consumers deal with credit, debt, and financial issues. Get the insider scoop on finances from the personal finance blog(s).
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Source: http://www.findarticlesbase.com/tips-to-help-you-manage-your-personal-finances/
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