How to manage your personal finances (the manager’s way)

May 26, 2010 by Victorino
Filed under Personal Finance Tips

We always want to put strength and stability in our personal finances. This is because no one usually wants a ruined financial condition. People always think and crave for financial success. However, only few of them realize that success. The reason is – we always think, but we lack actions. Another deeper reason is – yes we have plans and actions, but we lack strategic plans and actions. Here comes management, a system that will help us achieve our personal financial goals. But how? Do we need to have management savvy to put effective personal financial management system in action? The truth is…we just initially need the basics. The following are the functions of management that we need to know and understand to efficiently and effective deal with our personal financial objectives.

Planning
To achieve our financial goals, we need first to plan strategically. A plan is a set of objectives and procedures which aims to achieve an objective by executing the necessary procedures to achieve it. In the personal finance world, planning may include creating a financial plan. This financial plan may include budgeting and setting an emergency fund. We need to exercise reasonable calculations and estimations to get ahead of time. We can manage our finances in advance through planning. Advance planning reduces the risks of cramming. An example of planning is calculating your next month’s revenues and expenses and then putting and plotting them in papers or spreadsheets. With this, we can have a comprehensible picture of our financial status for the succeeding month. If we foresee a problem, we can find solutions for that problem in an early period of time. Planning can also help us compare our planned financial figures against actual results. This way, we can analyze our strong points and rooms for improvements.

Organizing
Organizing is arranging our things in the proper order. This practice includes the classification of resources, obligations and expenditures for a more efficient financial flow. We can classify our finances according to time (short-term or long-term), size (amounts of money) or priority (according to importance). By proper organization of our finances, we can efficiently carry out our financial plans. An organized person has the better chance of achieving financial success than a disorganized person. This function of management prevents us from chaotic situation that brings failure in any endeavor. Hence, it is always best to organize our financial elements and put them all in harmony instead of in turmoil.

Assigning
One important technique in managing our finances is the proper allocation of our resources (which may come from our earnings and saving) to our usage or expenditures. A good example of this is the allocation of our emergency fund. Emergency fund should be exclusively used for emergency purposes and not for regular usage. We can also assign allowances for particular purposes. Examples of these allowances are our household allowance which is allocated for our regular home expenses, educational allowance which is allocated for our educational expenses. The essence of financial assigning is to strengthen our financial condition and flexibility.

Directing
Directing, also called leading, is known as the heart of management. In managing our personal finances, directing involves motivating ourselves to achieve our financial goals. This requires the possession of effective human attributes and attitudes. Any strategic plan will become useless if a person is not motivated. Furthermore, organized and effectively assigned tasks and tools will not work if we don’t have the right interest to execute them. In attaining our financial goals (e.g., financial stability, getting out of debt, high investment returns, etc.,), our principles and attitudes play very important roles. We need to assess our current principles and attitudes which are the roots of what we are, as well as what our financial statuses are.

Controlling
Finally, we need to see to it that our plans are running well, and that any deviations from our original targets are handled well. Thus, monitoring must always be done regularly. We need to monitor and track down the flow of our execution – is it doing well or it is the other way around? Are we meeting our financial budgets or are we not? Do our actual expenditures exceed what we are expecting? These questions must be answered and they must be addressed. With the help of a strategic plan, which is well-organized and properly backed-up with effective tools, plus our will power to achieve our goals, we can assure that we can be able to find solutions whenever financial troubles come.

Again, we must keep in mind that in managing our personal finances, our personal attributes play a very important role. We need to become diligent, patient and wise to execute our procedures to achieve our goals. Planning, organizing, assigning, directing and controlling, these five functions must work together in full force and in powerful harmony.