Whether we like it or not, money plays an import role in our daily lives, it is the driving force of our aspirations for development and well-being. In a world ruled by money, people often forget that financial independence is not all about being rich. It is about developing certain money skills and habits that allow you to look with confidence into the future and give you a sense of complete control over your personal finances.

Becoming financially savvy doesn't require strenuous efforts or deep knowledge. The main stimulator is the desire to make the most of the money you have at your disposal (regardless of its amount) and understand how your everyday saving or spending decisions may affect your financial situation in general. So if you have decided that personal financial management is something you want and need, then here are three easy steps to start with in order to improve your personal finances:

1. Start Tracking your Income and Expenses. Start tracking all your incoming and outgoing money carefully. Use an online money management software to automate the expense tracking process and make this job easier for you. Get into the habit of recording your income and expense transactions immediately after they have occurred. Don't leave it for later, because you'll either waste a lot of time trying to remember each single transaction at the end of the day or most probably forget to write down some small purchases. If you want to get a clear picture of your personal finances, you must stay aware of any penny you spend. There is no such thing as "unimportant" or "insignificant" spending: you will be amazed at how these little expenses may really add up during one month.

2. Start a Personal Budget. Once you know how much money you have coming into and going out of your wallet each month, it will be easier for you to set a realistic personal budget. Calculate your total monthly expenses by categories and deduct them from your total monthly earnings. Ideally you should end up with a surplus that you can further use to cover any unpredicted expenses, build up an emergency fund or pay off your outstanding debts. If you spend more than you earn, you should take the time to carefully analyze your spending habits and identify areas you could cut back on expenses (for example, on food – make more meals at home and avoid eating out so often; on entertainment – invite your friends for a drink at your house instead of going to a bar, etc).

3. Monitor, Proactively Engage and Plan. Having finally set up a proper monthly budget is not the end of your personal financial planning endeavors, but only the beginning. Now starts the most important part of the process: sticking to your budget. A well-developed personal budget is probably the most efficient way to gain control over your personal finances, but it can as well become an useless tool if you don't monitor your budget progress and track your spending on a daily basis. You must proactively engage in keeping your budget on the right track and ensuring that your expenses stay within the predefined limits. Analyze your spending habits, identify unusual patterns amongst your expenses, observe changes in your category trends and dynamics in order to make informed money management decisions. Don't forget to plan ahead for the future by building strategies on how to efficiently use your monthly savings in order to get out of debts or reach your financial goals.

These simple steps will help you improve your personal finances and develop the right approach that best fits your financial needs. Whether you have millions or just a couple of hundred dollars, the rule is simple and it applies to all: learn how to take control of your money before it starts controlling you.

Published at June 22, 2012 08:56
Updated at June 22, 2012 08:56

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