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Personal finance sounds like one of those jargon terms that are relevant only to bank managers, accountants and other personal finance nerds.
However, it’s a hugely important aspect of our lives, one that dictates many of our lifestyle choices – and is therefore something that everyone should be able to navigate well.
Understanding your personal finances can be challenging, especially if you’re not used to money management, and haven’t had any education around handling your finances.
So here are some of the major aspects that only a nerd would know about personal finance, which you would do well to learn yourself!
1. They understand it
This one is obvious, right?
You can’t practice good personal finance without first knowing what it is.
Essentially, personal finance refers to how individuals handle their money, by looking at aspects like their income, expenses and savings.
A good personal finance plan will also consider investments, insurance and retirement, as well as things like credit cards, mortgages and other financial products.
While there are many various aspects of personal finance, the most important are budgeting your expected cash flow, paying taxes, growing your savings and/or investments, and planning for your retirement.
2. They budget and organise
Proper personal finance management requires a certain amount of organisation.
You absolutely cannot be successful in this regard if you aren’t organised.
This includes things like knowing your bank balance, being aware of your income and budgeting that amount carefully to ensure you’ve got everything covered, from upcoming bills to your morning coffee run.
If you don’t know where to begin, a good first step is to track every dollar you spend for a month, then sit down afterwards and collate the information.
This will give you a solid idea of where you can start allocating your money.
Luckily, technology has made this process much, much simpler so if you’re a budget newbie, there are plenty of apps and programs that can assist you.
3. They plan and set goals
Once you’ve tracked the majority of your expenses, you can estimate how much you spend each month and then put that amount aside.
By planning how you’ll save or spend your income, you’ll be much more likely to reach financial happiness.
Setting goals is equally important.
Not only can setting goals act as motivation to ensure you stay on the right path with your money, it also helps you quantify your progress to see whether your system is as efficient it can be.
A personal finance nerd also recognises the importance of allowing for time, because they understand that financial success doesn’t happen overnight.
It takes patience and a good plan, but it can be done.
4. They limit debt
Some ‘good’ debts, like the debt on an income-producing house, can be a positive thing.
Other debts, like car loans, can be an unavoidable part of our lives at certain times.
By implementing a clever personal finance plan, you can get your debt levels down and learn from any mistakes you make.
Borrowing money isn’t inherently bad, because there are many instances where debt can be considered beneficial, such as mortgaging a house.
If debt is accumulating an asset, it’s good. But things like credit cards can be financial death traps, so if you do have one – use it wisely and sparingly.
5. They know their credit score
Many of us don’t know our credit score, but it’s such an important part of our finances.
Credit scores are simply a way for lenders and banks to determine whether someone is fit for a loan as well as their interest rates and credit limit.
While you can still get a loan with a poor credit rating, your interest rates might be higher and you likely won’t be able to borrow much.
6. They’re not afraid of tax time
Tax can be a scary concept if you don’t really understand it, and not many of us do. It’s so important to stay on top of your taxes however, because they can come back to haunt you down the line.
Whether you do your tax yourself or you enlist the help of a professional to do it for you, it’s essential to lodge a yearly tax return including all your income, assets, etc.
Don’t exaggerate or underestimate, because you’ll find yourself in hot water and could end up owing the ATO a fair amount if they catch you in the act.
By staying on top of claimable expenses, keeping receipts and tracking your income, you can come out on top at tax time.
Whilst the idea of mastering your personal finances may seem overwhelming, boring or simply to hard, it’s really not that difficult once you get started. Begin with baby steps – getting your budget in order is the ideal first move – and then slowly build your financial foundation.
From this, you can create an investing strategy that sees your acquire property assets and build lasting wealth, but without a strong financial foundation to grow from, you’ll constantly be taking two steps forward and one step back.
Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on
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