Five Principles of Personal Finance

There are many people who would like to organize their personal finance and manage it better. Personal finance planning is simple if some basic principles are consistently followed to manage your finance. Evaluating your spending habits, reducing debt and consistently saving money are some basic principles that everyone should follow. Five principles for managing finance are given below:

1. Monthly budget – The first thing you should do is to prepare a monthly budget for you to follow. You can use a tracker where you record your expenses in one column and your income in another. This way you will be able to figure you whether you have a negative or a positive balance. Make sure that you record everything at the end of your day which will help you in making a budget. Once you have a tracker you can set a certain limit for spending each month so that you don’t spend over and above your income.

2. Debt reduction – Reduce your debt to the bare minimum. You may have to take loans for acquiring things that you must have but at the same time do not take loans for things that you may not really need. There are many companies which can manage debt efficiently for you and are very affordable. Make use of the services of such companies.

3. Savings – Save enough for a rainy day. In these times, a rainy day can mean losing your job, meeting with a devastating accident or a natural calamity. If all of your income turns to expenses by the end of the month you will be hard hit by any of the exigencies mentioned above. In any case, you must save ten to twenty per cent of your income every month so as to have enough saved for exigencies.

4. Investments – Diversify your portfolio and invest for the long term. Play it safe and do not invest in stocks or instruments if you are not fully aware of how they work out in the long run. Seek professional help and do not hesitate to engage a day trader who can bring you more return on investment.

5. Credit score – You should know and maintain a good credit score for yourself. Do not avail of more than 30% of your credit at any time. Borrowing any more will result in a low credit score. Make sure that you pay any installments on time and never default on any.

In order to stand up to monetary challenges you need to have sound financial planning. You can easily achieve financial freedom by following these basic principles that are also easy to follow.