Why I must manage my finances?
This question is asked to me by many of my friends. I constantly get messages of my friends getting into bad debt and ruining their life. Do you want to be one of those? If answer is no, then you have got the answer to main question too. Since you have decided now to manage your finances, You have to go through the ABC’s of Financial Management too. What are the major things one need to know to manage.
- Act on the plan.
Planning – This is the process of creating plan document or in another way creating a snapshot of your future with the rules,regulation, path to follow etc. shown.
Action – This is the process of implementation of plan.
We all know that computers have revolutionized the way we work, communicate and live. So we can use computers to even plan also. We have software’s and websites devoted for personal finance management. The popular website and software in this category is Mint.com
and Quicken. We can use Excel for budgeting also. But the software’s offer much better control. In spreadsheet based solutions its easy for tracking 1 account, but the user needs to have lot of experience with various excel commands and its too rigid. In the specialized software’s its cake walk for user as learning curve is pretty small and the solutions are pretty robust. I Currently use MS Money Plus Deluxe Sunset edition
. The limitation of this edition is the automated transaction download and host of other features are disabled.
Many people used to suggest me just control spending and spend only on necessity which would automatically put my finances on balance. Even though this method is fairly simple, it cant save you from disaster. The reason for this is – when you know how you are spending on things, you can allocate budgets properly. Suppose you wanted to build house and you use spending control method, it would take 7-8 years to have substantial savings to invest in house. Whereas in budgeting method you can allocate 10% of your salary specially allocated to this activity.
Budgeting your finances:
This work can be done when you are in control of your spending. Here are some golden rules of budgeting.
- Keep your monthly committed expenses, including taxes, to about 60% of your gross income.
- Save 10% for retirement and 10% for long term expenses, such as down payment,new car, major home repair or other big, infrequent purchases.
- Set aside an additional 10% for smaller, irregular expenses, such as new home appliance, a minor home or car repair, or a new battery for your laptop.
- Use remaining 10% for wild, crazy parties( or anything which strikes your mind fancy).
- Involve participation of all the family members in preparation of budgets.
The above given rules were provided by MS Money Expert MP Dunleavy in start with saving, the spending will follow.
To some these might pose as daunting task if the taxes are high. But planning on these lines will yield you to enjoy your life as it is able to absorb some amount of financial shocks.
MS Money Screenshots:
Planning the finances:
As you have come to know the comprehensive view of MS Money system. Its better to plan our lifetime spending so that we can retire happily. To plan our lifetime finances its necessary to have good budget. Once we have a robust budget we can use Planning tools of MS Money or other Personal Finance software’s to plan our lifetime budgets. We can use the average inflation rate to keep the plan more realistic. We can use the pen and paper for planning but since these software’s are more advanced and accurate, these software’s are suggested for usage.
Implementing the plan:
The last page of financial management is implementing the plan. Planning is waste if its not followed by implementation of the plan. Its the implementation which distinguishes one from the crowd.
For more tips on personal finance visit
MSN Money : Personal Finance MBA Guide to Personal Finance.