· Personal finance is an exciting, sometimes stressful, journey about managing money if you want to optimize its usage.
1. Cash flow
· Managing money is primarily about cash flow.
· Your earned income is the inflow, and your incurred expenses are the outflow.
· Both do not match in time or amount, and remain mostly unpredictable.
· A simple way to manage it is to list out and pay off all mandatory expenses, such as loan instalments, rent, phone bill, etc., as soon as the cash comes in.
· Whatever money remains is then relatively easier to manage during the month.
· Therefore, separating the routine mandatory expenses from the unplanned discretionary ones is a good skill to acquire early in life.
2. Cash is a limited resource
· Learn to think of cash as a limited resource with multiple uses.
· There is always an alternative use you can put your money to.
· Spending gives you a great sense of happiness and independence
· Excessive spending can lead to guilt of not being careful with your money.
· Being too conservative makes you worry that you are not enjoying your earning.
· A simpler way is to have a mental budget of how you apportion your income.
· You may typically apportion 10% for going out with friends, 15% for your clothes and grooming, 10% for books and movies, 40% for running your home, and so on.
· This helps you to know when and where you have crossed the line.
to be continued...