When money seems to be slipping away like sand through your fingers, there is a need to step up your personal money management. Personal money management starts but does not end at being able to zoom in to your money’s step by step journey. Traveling alongside your money will bring you to three parts of financial mapping – tracking your income, paying for expenses, and setting aside for savings.Let’s take a closer look at each of these:
Income: Track where and when the money arrives
Income may not be just from the monthly paycheck, but also from dividend shares,earnings from a business, salary from a side job, etc. Identifying which ones are regular sources and which ones are variable gives you a good perspective of the amount and the arrival schedule of your funds.
Expenses: Identify fixed, periodic, and variable expenses
Fixed expenses are expected or obligatory payments to settle at predictable intervals. It covers mortgage, car loans, and other types of secured loans. Periodic expenses are “expected surprise” expenses that are billed quarterly or annually.While fixed expenses are easier to track than periodic expenses, both are quite challenging to budget for because it requires automatic allocation of resources for these to be paid off. Variable expenses require the most effort in budget allocation because these are expenses that are influenced by our buying behaviors. Thus its amount may vary every month. Variable expenses cover food, clothing, and entertainment. Once expenses are categorized, allocation of income becomes easier and ensures there is an allotted portion for savings.
Savings: Preparing for the future
Effective personal money management makes sure that a part of the income goes to savings. A good savings plan addresses emergency needs, allots for short-term savings, and sets a portion for retirement plan without being debt-trapped. Ideally,the emergency savings must cover six months of a family’s expenses. Short-term savings can be used for buying a new home soon, home expansion, or for planned vacations. A 10% to 15% of the gross income is ideal in setting aside for Retirement Plan.
Personal Money Management does not end at identifying these three parts of financial mapping. The next move is to identify means to save more, like what type of accounts to open and which investments to explore. Financial priorities depend on what personal or family life stage you are in. Regardless of what life stage you are in, aim to spend less and save more.
If you need in-depth personal financial mapping assistance, Houzerz Mortgage and Loans Company can help you dig deeper.