Personal finance is one such skill that’s rarely taught in schools but essential when existing the ‘real world’; few people will take the time to sit you down and explain finance because they too have little to no knowledge to distill on your behalf besides the general diatribe of saving money.
Personal finance is easy once you understand the “rules” to the subject. The goal isn’t to chase the quick riches nor is it pinching every penny. The goal of managing your money is to gain a greater level of comfort in knowing that your future will remain free from the clutches of debt.
Here’s what you need to know:
Rule #1: Know the Income
Where is your money coming from?
This simple question changes everything you need to know about personal finance and is the basis for playing by the rules.
Your income can come from many sources:
Whatever the source – you need to keep a constant check on how frequent and stable this income truly is in order to accurately budget your finances.
Begin tracking every penny that comes in from month-to-month; discard the one-off sources of income and conclude your average, monthly income. This will give you the baseline for everything related to your personal finances.
Rule #2: Know the Expenses
Like the sources – you need to know the expenses.
Following the very same routine, you should track and record where your money goes each month of the year. It may take a season to reach a logical conclusion of where the money actually goes but this long-term commitment to tracking will give you the average expenses you incur over the course of your finances.
Understanding where the money goes will allow you to properly attune your budget to aim for the bigger wins such as a stable retirement, purchasing a new home, sending a child to college, or simply getting out and traveling the world (it’s whatever you want).
Rule #3: Know the Potential
Finally, you must not bypass the rule of understanding your potential when it comes to personal finance.
You know your income, you know where it goes, and so now you need to put your money to good work.
A great start for understanding your financial potential is to use financial surveys and calculators to gain a logical outlook on your money. The financial tool at MyMoneyCheckup.org is a great place to start as it guides you through a series of questions that will report your current standing with such areas as budgeting, savings, housing, retirement, and all other areas that allow you freedom from debt and the stress that comes from being underprepared.
There are many tools available, on the Web, that will do this type of assessment but MyMoneyCheckup is a great place to begin since it’s free, backed by the NFCC, includes plenty of great resources, and cuts out the fluff that’s packaged with many commercial products. (It’s also available in Spanish, at this time).
Whatever you use to review your income – you must apply your knowledge of income sources and expenses to accurately align your money toward the areas you lack. It may be a slow, sometimes boring, process but anyone can take control of their personal finances if they have proper understanding and guidance.
Take this information and keep learning – learn as much as possible – not everyone will distill you with what you’ve learned in personal finance so use and leverage it to your gain (and then pass it forward).