Personal Financial Management is a Balancing Act

Personal Financial Management

“You must gain control over your money or the lack of it will forever control you.” – Dave Ramsey

Achieving your financial freedom is like juggling 10 balls at the same time; you have to perform a balancing act so that whatever you do in one area does not affect the other areas adversely. What are the ten areas?

1. Maximize your return on investment: The rate of return will determine the growth of your investment. However, the higher the yield the riskier the investment is. So it is a balancing act to maximize return and protect your capital

2. Purchase a house: How much you spend on your house will affect other areas. If you spend too much on your house, perhaps you have to spend less in other areas,

3. Retirement fund: Again, if you allocate too little you may not have enough during your retirement. If you provide too much the other areas will be affected.

4. Educational fund: Our aim is to allow our children to have quality education. There again we need to be prudent not to spend too much or else our retirement fund may be depleted.

5. Annual holiday: Spending a good time in a foreign country is a great joy, but doing it too often will drain your limited financial resources. You have to decide how much is enough

6. Daily living expenses: Do you want to spend lavishly or frugally? How you spend will affect your allocation in other areas.

7. Your emergency fund: It is to cover medical and out-of-work expenses: You have to consider leaving enough money to cover a period when you are jobless or you are unable to work due to illnesses.

8. How soon and how much you start to save: The sooner and the more you save, the faster it is for your money to grow. It means you will create a larger fortune because of the power of compound interest. But the more you save the less you will have to spend daily.

9. Purchase a car and changing cars: How big a car you buy and how often you change your cars will definitely affect your financial resources.

10. Your household income: The size of your household income will largely determine the allocation of your fund in various areas of your life where you need to be financed. Of course the more you have, the merrier it is but it is still limited.

Personal financial management is never easy. The most important thing is to stay out of debt and live within your means and be happy with what you have.