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It is true that earning money is difficult but it is more difficult to manage that money that you have earned after so much hard work. The concept of maintaining a positive net worth, is alien to most people.

This is mostly because they are not aware of correct techniques in which they can live a stress-free and debt-free life by making a small change in their lives – Managing your Money. In this article, I will share some ways of managing your finances. But before that, I would like to ask, how many of you actually follow a budget?

I hope that the answer is yes for all but sadly, I am aware that most people do not even track their expenses. Financial management is as important in a household as it is for a company or a business. If you want to end up some money at the end, then you will have to start working in that direction as soon as possible.

Managing your finances does not always mean being lost in the paper work. You can start small and after some time, if you feel that you still need to consult an expert, then by all means – Do get a health check-up of your savings account.Ways of managing your finances

Below are some ways of managing your finances which I believe are helpful to all even if they are not Finance management Guru in real life:

  • Track your income and expenses: Make a Budget

The first step towards financial management is to track your money. You will learn to manage it automatically once you are aware of the inflow and outflow. The best idea is to make a budget. It is very easy to create a budget on your own for your household. Include all the sources of income under one column (Income) and list all the items on which you normally spend monthly under another column (Expense).

Enter the values for each head and check your net worth. (Income – Expense). If your net-worth is showing as negative then it indicates that you are spending more than you are earning. This can never be a good thing. If you will continue on the same path then you will soon end up with a huge amount of debt. Hence, make some changes in cash outflow and try to keep your net worth positive.

  • Save for emergencies

Ensure that you are saving a small portion of your income for unforeseen circumstances. This will help you in emergencies and also create a corpus, in case you never spend a large amount from this saving.

  • Avoid credit cards for daily purchases

Credit cards are best in case of emergency but, using a credit card all the time can make you an impulsive buyer and hence increase your expense.

  • Learn to avoid unnecessary temptation for luxury items

Never go out on a spree- shopping-mode and spend on unnecessary items which you might not even use once in your life. A decent lifestyle can help you save some extra cash if you can learn to control your temptation to buy every nice thing put in front of you.

  • Get rid of things which are not used in last six months and earn money from selling them

Now that you have already understood why not to buy unnecessary products, it is time to sell all those useless items in your house, which you might have bought before this day. Look around and see if there is anything that was expensive but is of no use to you, then eBay it.

  • Educate yourself about common financial terms

Learning a few financial terms are not going to hurt you. On the contrary, it will make you a better finance manager. You can pick up some learning from finance column of a newspaper or by searching it on Google. Basic understanding of personal financial planning can help you throughout your life.

  • Avoid loans of any kind

Try not to take a loan until and unless it is very essential. Bank and credit card loan interest can eat up your saving. Taking a loan on credit does not make much sense, as you end up paying more for the same product in the form of interest.

  • Never let your money sit idle

Invest your money in various instruments. Bank deposit earns you interest, but they are not sufficient in long run. Your money’s worth may degrade due to inflation and bank deposit interest is very low when compared to inflation. Invest in equity, debt or mutual funds as per your risk appetite.

  • Insure yourself and your family

Only focusing on making money is not called managing your finances. Insurance is an important part of financial planning. You do not want to leave your family with anything or worse with debt in case of any accident. Your insurance will make sure that your debts are paid and your family can live happily even when you are not there.

  • Plan ahead and keep reviewing your future plan on a regular interval

Planning for future will make your retirement a vacation and not a punishment. It is advised to start saving for retirement days from a very young age.

  • Understand the factors which affect your cash outflow and then make any financial decision:-

Factors affecting cash outflow can be anything which can be responsible for growing or reducing expenditures. The main factors are as follows –

Family Income (combined) – The cash outflow for a family is directly proportional to the income of the family. The more an individual earns, the more he or she tends to spend. There can be one earning member or more in a family. Income includes all kind of cash inflow like rental income, interest or dividend, self-employment income etc.

Family Size – Family size is a factor as every individual will have some basic needs and requirements and hence the expense increases.

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Family’s age – By age of the family, we mean the current stage of a family in a family life cycle. For example, newly married, married with kids, married with kids in college, dependents and so on.

Locality, State and Country policies – In expensive city or location, a family will have to spend more, than in comparatively cheaper area.

Spending Habits of family members – This is one of the factors that a family can totally control. Other factors are also responsible for cash outflow but the spending habit of a family can determine whether they save or not.

Interest rates on loans – Credit cards and other loans tend to have very high-interest rates and hence increases the outflow. Also, there are other factors which affects cash outflow in personal finance such as emergency, social festivals and events or economic status.

Hope this will help you to understand basic financial management and to live a debt-free life.


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