According to Investopedia’s definition, personal finance is essentially how are you managing your money overall. That includes managing your expenses, income, savings, and how you plan ahead for future investments.
It is definitely a skill that everyone should obtain and improve upon. The better you get at managing your money the better you will future-proof your income and security. Being great in personal finance is also an empowerment for anyone.
In order to be able to develop this skill, you will need discipline, strategy, and determined and defined goals. To perfect it you will need to add persistence and make a habit out of it.
When looking at the connection between personal finances and personal growth, you can look at individual goals, desires, and how is that going to be accomplished. For both, you need these fundamentals in order to successfully grow and manage them.
Personal finance has much in common with general personal growth, making it an excellent addition to your arsenal.
The best connection you can make is when you need additional money to purchase something that is directly going to help your personal growth. That way you are going to work on money management in order to obtain a certain goal, which will further propel you. Not to mention that psychological reward response will be significantly higher.
It really intertwines with one another. So we can tell that one goes with another.
That can be a wide range of things, however, by having financial discipline and looking for yourself in the future you can accomplish personal development as well.
In essence, by developing your financial knowledge and skills you are also developing your personal skills. You can use the approach and parameters from financial management and implement them in any other skill you want to develop or obtain.
Why is Managing your Money Important for Personal Growth?
Managing money requires discipline. When you have disciple and great habits in your life any new skills will come easily. In order for you to grow you must develop discipline and persistence.
Money discipline is also important to collect and managing your finances. Not only that you will need the ability to plan ahead for your future endeavors.
When engaging in an activity that requires you to focus on every basic level, like managing your expenses for example, you will feel the necessity of what you are doing. You will notice that it is really necessary for you to do this so you have insights into what you doing with your money.
It is a life skill that will further help you in your career and your personal life.
It can help you and your relationships too. When you are little or zero stressed out about where the money goes, and how to manage it, you will have less to argue with your partner.
This doesn’t diminish the stress if you are struggling with the money at all. But it will give you a clear picture of what can you expect and what are your options. It is always better to have 100% of information and to decide what should be done than to just swing around and hope for the best.
There is the possibility to develop some skills on a budget, we have written about it just as a guide that you can look into if you are struggling with money but have the motivation to improve yourself. You can check the post by clicking here.
Nevertheless, that may be able to assist you in some way. But, there is a good chance that you will get stuck at some point since you don’t have a lot of maneuverability without money.
What are some Basics of Managing Personal Finances?
I will share with you some basic principles that I use for managing my finances. I have searched and experimented with different approaches, and schools of thought and I find what works for me.
Expenses:
- Have a notebook, app, or Excel sheet where you will state all your income, and all your expenses. You will add every day or every week what your expenses were, and compare that with your total sum of money (just to double check if you include all your expenses).
- Categorize your expenses – this will give you great insight into what can you adjust in order to save more money and to see where you are throwing money into. I have 4 categories of expenses and they are as follows – 1st are mandatory expenses, 2nd are necessities like basic food, and water. 3rd what makes your life easier, for me these will be supplements and extra purchases from grocery. 4th is what you really don’t need and could live without – for example food deliveries.
You can make fancy graphs and have all kinds of formulas and trackers but staying on basics is paramount. Once you have clear insight into what you are spending your money your perspective will change.
You will start to ruminate about your future and what can you do with your current finances in terms of savings, investments, etc.
Savings & Funds:
- Go with as much as you can in terms of paying yourself first when your paycheck comes, you should aim for 10% of every paycheck.
- Rainy Days fund – is for dramatic scenarios, like unwanted health and medical bills. You should aim for about 3 months’ salary just in case. And put this money on the side don’t touch it.
- Black fund – is when you lose your job and are left without income. Aim for a budget of the last 6 paychecks just to cover yourself up for a while.
- Personal Development fund – This one is the most flexible one, and entirely depends of your goals. You see something that you want and need for personal development but you need additional money for it. You can save and for a couple of months dedicate a portion of your income toward that goal.
Savings and funds give you a sense of actual security over your finances. Think of it as a preparation for just-in-case scenarios. It will also detach you from being too emotional toward the money you have. You don’t need to herd it just direct your money towards your chosen goals.
Thanks for reading have a nice day and take care.
