The recent global economic trend has made people more conscious of their finances. Almost every country is facing a price crisis. With the looming uncertainty of when (or if) things will revert to normal, it is now more important than ever to practice money management.
Depending on your situation, there are several goals you can set up and work towards to achieve more financial freedom. Such include:
- Paying back debts.
- Making wise investments.
- Saving money for retirement.
- Setting a spending budget.
This article discusses personal finance, its importance, and some relatively easy goals you can set and work towards this year. Read on for more!
What is Personal Finance?
Personal finance refers to the activities involved in managing your money personally. This generally includes good money habits like saving, budgeting, investing, and planning. The goals of personal finance include:
- To reduce or get out of debt
- Plan well for your spending
- Make wise investments
- Create more sources to generate more income
- Save for emergencies
Here are some of the main aspects of personal finance:
1. Managing income
Income refers to sources that generate money for personal use. This could be your salary, extra cash from online gigs, dividends from investments, or pension.
Since income provides the money to support you and your personal goals, personal finance should include adding and diversifying your income sources. This way, if one source is dwindling, you always have another to fall back to.
Saving is also a key concept in personal finance. It refers to excess income after spending. It can be kept aside for goals such as emergency funds or saving to purchase something.
Experts encourage people to make a balance to avoid saving too little or too much. You should keep your money private, especially if you don’t anticipate using it soon. It can quickly lose value, so it is desirable to find a reasonable project and invest in it for returns.
Investing means more than just purchasing millions of shares in a high-tech company or financing a ground-breaking project. It can also mean putting some money into a profitable small business, paying a premium subscription to software that will help you double your returns, or even more currently, buying some crypto-currency (only, of course, after some good research).
Investing is always risky, so you have to be careful and make deductions after you have your facts rights. A good investment should be able to pay back your initial stake and a good return.
Managing your spending will involve creating a budget and carefully allocating an amount to each item. A reasonable budget considers everything you want to put your money into, including savings and investments.
A budget helps you keep track of your spending habits and has a visual representation of your goals and their progress.
How to Set A Good Goal
Setting goals is a critical step in money management. It helps you understand what you are working towards, how to get there, how long it will take, and it will show you when you will get there. From this, you can draw a good management plan that includes all the aspects discussed earlier, such as saving and investing.
Here are some steps to help you set good goals for your personal finance:
- List down your goals – The first thing to do is to figure out what you want to achieve and list it down. This includes what you don’t consider practical or too far off in the future.
- Sort out the goals – Once you have a list detailing what you want, go through it and sort out the items. You can divide them based on what is in the short, medium, or long term.
- Analyze your goals – Take time to make sure that your goals are specific, measurable, achievable, relevant, and timely.
- Create a budget – Create a realistic budget for each item on the list. This will help you understand how much will be directed toward your goal. You can then work with the amount to draw a total budget.
- Create a plan – Now that you have a list of goals and their estimated budgets, you can now draw out a plan to achieve them based on your current income.
- Monitoring – Keep a keen eye on your progress to ensure that you stay on the right path. You can allow yourself some mistakes, but if you need to progress better after a while, regroup, find the problem, draw out a reasonable solution and make a new plan if necessary.
Importance of Goal-Setting in Personal Finance
Planning – Setting your goals will provide a clearer vision of how to get there. It will help you draw out the most effective ways to work towards achieving what you want.
Tracking your progress – When you know what you want and have set the most effective plans in action, it is easier to see your progress and spot deviations before they creep up and cause problems.
Reducing money wastage – A good plan will help you allocate money to the priority goals you are working towards. This allows you to account for your income and spend it according to your plan rather than wasting it on spontaneous purchases.
Getting out of debt – If one of your goals is to clear your debts, a good plan can help you pay them off gradually without putting too much pressure on yourself. This will help you be timely and even improve your credit score in the long run.
Motivating you – It is easier to get to work when you have a clear goal. It is even easier when you have a good plan and understand what to do to get there.
Building accountability – Setting SMART goals clarifies what is in your control and what you are responsible for. This helps you know your role towards your own success and motivates you to take charge and be accountable.
Personal Finance Goals You Can Accomplish This Year
Here are some of the most important and common goals in personal finance. Checks out which ones align with your long-term aims and add them to your list:
No matter how well you plan things, any number of things could happen and instantly destabilize you financially. Your car could break down unexpectedly; you may need to pay for emergency surgery for your pet (if you don’t have pet insurance); you may need to relocate within a moment’s notice. The list is quite endless.
An emergency fund is carefully calculated and contains a reasonable amount for emergencies. Having one will save you from debt, missing out, lawsuits, embarrassment, and many other consequences.
If you owe anyone money and can’t pay it all at once, it is wise to include it in your goals and priorities. You can put aside specific amounts regularly to contribute to the debt before it is due. This will help you stay on good terms with many people and save you as much trouble as possible.
Paying off debt is especially important for huge loans like a house mortgage or your car loan. As we can see today from the economic burden of paying off student loans, such debts stick around for a while. Usually, they have far-reaching consequences if not duly settled. These kinds of goals should be prioritized and planned for very carefully.
Saving for retirement is one of the most important long-term financial goals. While only some people earn enough to set aside money for the future, it is important to do it at least once in a while. The fund will be available when you stop working and should help significantly improve your quality of life.
Your goals should also include any expensive purchases you want to make. Many people tend to walk out and spend a large amount of money on a whim on things like phones, computers, TVs, and other tech gadgets. This then sets them back financially. They need time to recover that money before pursuing their different goals.
Including such goals in your personal finance plan ensures that you are working towards them reasonably and not at the cost of your other goals or your sustenance.
In conclusion, managing your personal finance is a responsibility that falls squarely on you (unless, of course, you can pay someone else to do it). Suppose you establish what you want, set plans to achieve them, and work with dedication. In that case, you are guaranteed to improve your finances significantly. Check out CrazyMoneyFacts.com to help educate yourself more on how to improve your personal finance!