Personal finance can be represented in terms of a very simple and easy equation that is
Spending more money than your earnings will result in a negative wealth or cash flow. It shows that your wealth is decreasing and probably there is a chance that you might face hazards of debt and in case if you are already having a debt then you are creating more trouble for yourself. On the other hand if you control your spending in such a way that it is less than your earnings then your cash flow will be positive and you are potentially building wealth and in case of debt you can get rid of it.
According to Brokamp’s article the personal finance depends on the three basic skills that are already mentioned in the equation and they can be described as:
Different people have commands on different skills. Some may be good at one but not on all like you may be good at keeping your spending low but your ability to bring in more money is not that good. Some people may be good at two skills at a time like they have the ability to bring more money and also spend it wisely keeping their costs low but are not good at the third skill that is savings. While there may be some folks that are pretty good at all the three skills or they have average skills that are acceptable.
In order to manage your personal finance successfully, you must master all these three skills.
The very first thing to learn in personal finance is your ability to earn money. For some people this phrase means managing your career in an effective way by having the best possible job and finding ways to make progress in it to increase your earning. Other ways that may be adopted for enhancing the earnings include selling your owned stuff, engaging yourself in hobbies that build money or one can initiate their own business.
Some steps to enhance your earnings are as follows:
The key to increase your income is hard work. Though hard work does not guarantee high earnings but at the same it is also true that you cannot increase your income without working hard. So you should develop the habit of hard work.
Another most important point to increase your income is to cut down your spending. Simple if we assume life as a game then the annual income would represent the earning score.
Some people face difficulty in increasing their income while others lack the skill of managing their expenditures. Some people like spending a lot of money to fulfill their wishes. But in order to become wealthy the key point is to create a big gap among your income and expenditure. Some points to develop skills in spending wisely are explained below:
In terms of game, the one who spend minimum from the income would score the best. This skill is a bit hard to develop but once tried honestly then it is added to your habits.
Savings is simply defined as the difference between your income and your expenses. And this difference means a lot in the long run. The concept of savings is directly related to your treatment with the surplus money. If you just put your money aside then it is not called saving as the inflation causes the value of your money to decrease. You should devise some ways of increasing this saved money to enhance your personal finance. Some steps that must be followed are given below:
In sense of a game you would score your best when you save a lot from your income and also manage it well.
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