Easy and Effective Ways to Manage Your Personal Finance

Managing your money is an easy 3-step process:

1. Find out your financial situation: Do a worksheet to find out your net worth. It is a listing of what you own and what you owe. The difference between the two is your net worth 

NET WORTH
Assets
Cash and bank accounts
Investment in stocks and unit trusts
Life insurance policies (Cash value less loans)
Real estate (fair market value)
Cars (market value)
Other assets
Total Assets
Liabilities
Outstanding bills
HP loan
Mortgage balance
Credit card debt
Other liabilities
Total Liabilities
Summary
Assets
Less liabilities
= Net worth

2. Set goals: The most important goal of personal finance is avoiding debt. There are two  simple formulas to set your goals:

• Without debt: Income= Expenses + Savings
• With debt: Income = Expenses + Savings+ Debt repayment

          

Your savings serve short-term and long-term purposes:

·    Short term: Emergency fund, big-ticket items, down payment for a car, holiday and other purposes

·    Long term: Down payment for a house, children’s education fund, retirement fund and other long-term commitments

3. Follow the budgets: It takes self-discipline and self-control for you to follow the budget faithfully. It means you must control the temptation to spend what you want and be happy with what you have.

You should monitor your financial situation at regular intervals like checking your net worth at the end of each year and make necessary changes to your changing lifestyle and income levels. The aims of personal finance remain the same: stay out of debt and achieve financial freedom.