An Ultimate Guide To Personal Finance Management

September 26, 2022

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Personal finance management involves managing individual and family finances, setting financial goals, budgeting, and saving for the future.

In this ultimate guide to personal finance Uk, we will be discussing personal finance companies, and personal finance tips for managing personal finances.

Importance Of Personal Finance Management :

Managing personal finances can protect you from lurching into crises such as sudden illness, unexpected loss of job, or sudden death of sole bread earner.

Personal Finance Management :

Personal finance management is essential for controlling and checking personal finances.

Beginners can manage personal finances by following these personal finance tips;

let’s explore:

Live Within Your Means :

People get confused about personal finance management, and they usually don’t know where to start.

Managing your expenditures is also a key to managing your finances. If you cannot cut your expenses, make extra money (e.g., by working on weekends). Try to spend within your means and avoid unnecessary expenses or luxuries.

For instance, instead of dining out every other day, you can minimise your expenses by cooking meals at home. Creating a budget can help manage your expenses.

Budgeting :

Budgeting is crucial when it comes to personal finance management. Budgeting enables you to analyse your income, expenses, and how finances should be managed so that saving could be possible.

There are some budgeting apps (such as Mint, You Need a Budget, Personal Capital, etc) that can help you organise your finances.

There is a renowned budgeting framework that is called the 50/30/20 budgeting approach.

50/30/20 Budgeting Approach:

This budgeting approach allows you to spend 50% of your income on mandatory costs such as food, rent/mortgage, bills/fees, fuel, car payments, etc.

30% of your income should be spent on other expenses that include phone or streaming expenses, dining out, etc. The remaining 20% should be saved.

Put Credit Cards Away:

You can avoid using credit cards until you manage your finances. More money in interest is spent by carrying a credit card balance.

Pay Off Debt :

Paying off high-interest debt (e.g., credit card debt and payday loans) is crucial to keep your finances in order; balances will keep growing if it is not paid off, and more interest will be added.

If you have paid off your high-interest debt and moderate-interest debt (e.g., moderate interest loans or subsidised student loans) is still hanging over your head.

The moderate interest rate is between 4% to 8%. Pay off all of your debts, even low-interest debt.

Building Emergency Fund :

When the debt is paid off, the next step is you should save some amount for unexpected expenses or some catastrophe, for example, loss of job, medical emergency, pandemic layoff, physical injury, car repair etc.

But the question is how much should be built up as an emergency fund.

There should be at least three months’ worth of living expenses saved to meet emergency expenses.

An online savings account can also be helpful as the online transfer can be activated.

There should be enough money saved as an emergency fund to cover your three months living expenses.

Savings For Retirement :

Saving for retirement should be your goal; the sooner you start saving for this purpose, the better. You should save at least 10% to 15% of your gross salary.

It is recommended to have two times your salary when you are 35; by the age of 50, you should have 6 times your salary, and until your 60s, retirement savings should be ten times your salary.

There are some ways with which you can save enough for your retirement; these include:

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Special Retirement Accounts :

Savings for retirement can be transferred to a special account that gives you valuable tax breaks.

401(k) and 403(b) Plans :

There are some retirement accounts offered by the companies, such as 401(k) and 403(b) plans.

401(k) Plan:

This plan is by private employers.

403(b) Plan :

This plan is by non-profit organisations and the government. Everyone is supposed to contribute to these individual accounts or IRA accounts from their monthly income.

With both 401(k) and 403(b)/IRA accounts, you can get upfront tax breaks.

The contributions in these plans reduce taxable income for the year. There will be no tax owed when you make withdrawals in retirement.

SEP IRA :

SEP IRA (Simplified Employee Pension Individual Retirement Arrangement) can be opted if you work independently.

SEP IRA allows more contributions each year than traditional IRAs. SEP IRA has no Roth version; it only comes in a traditional format.

Roth IRA:

There is a retirement account with tax benefits named IRA (Individual Investment Arrangement).

These retirement accounts can be beneficial as they let you save a lot of money on taxes when you retire.

Start saving in Roth IRA because of the tax advantages it offers.

Borrow Smartly:

Try to borrow as little as possible when it is truly needed. If you borrow less money, you can have money to put forward other goals.

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Save For Your Dreams:

After managing all personal finances, you can consider putting aside money to achieve your dreams, like going out on vacation to your dreamland, paying down your mortgage early etc.

Invest Your Savings :

When you build up enough savings, you can have two options either to put more money into your pension; which assures you that you can live your life in comfort later on, or another option is making an investment plan based on your timeframes and goals.

The investment can be of several types, such as:

Self-Investment :

You can invest in yourself, for example, by buying courses or books, making an additional source of income, investing in your financial education and taking classes.

Investing In Assets :

You can invest in assets to generate profit.

Investing For Retirement :

You can make investments for your retirement to live your life after retirement without worrying about your finances.

Investing To Elevate Finances :

Investment in elevating your finances can help you increase your income; for this purpose, a side hustle can be started, e.g., starting an online job, delivering groceries, mopping grass etc.

Personal Finance Flowchart :

A personal finance flowchart represents different stages of the finance management process through a diagram. Flowchart symbols such as Arrows represent the sequence or order of steps.

UK personal Finance UK illustrates five major stages; these include:

Budgeting
Paying Off Debts
Building Emergency Funds
Saving for Retirement
Investing

If you follow the five stages mentioned above in the personal finance flow chart, you can better manage your finances and make your life comfortable.

Personal Finance Companies :

Personal finance companies provide insights about start-ups or investment activities and acquisition trends.

Personal Finance UK deals in the following personal finance companies.

Sum Up:

In this article, personal finance tips are discussed that can be helpful in managing your finances in the best possible way.