Managing your Personal Finances 1

There are so many discussions around defining an optimum equation to manage personal finances. Managing personal finances has become so difficult nowadays and many are drowned in huge debts. This vicious debt cycle starts right at the point a person starts earning money.

Second day at Work

The very first day we start working in our first job, the next day we will be getting a call from a fancy reputed bank offering a credit card. We think that these banks love us so much and they perceive us as wealthy men and the next thing we know, we end up with multiple credit cards. Credit cards nowadays come with fancy credit limits and into the bargain they couple credit cards with very attractive credit card shopping offers. All of a sudden we start spending forgetting whether we can afford or not.  Spending money Vs. paying using a plastic card psychologically affects the spending patterns and credit card companies successfully leverage on this. And this continues, then they offer us car loans, then housing loans and by the time we are in mid age all we will be having would be huge debts and higher percentage of income is spent on interest.

Overcome the Vicious Credit Cycle

How to overcome this vicious cycle? What are the specialist views on this vicious cycle? Rich Dad Poor Dad defines the ultimate finance freedom is where your investments generate earnings similar to your investments. Warren Buffet advises, that we should never depend on a single source of income.

Majority after reading these statements will say it is easy said than done. The starting point is to know what an investment is. In very basic terms it is an asset which will generate an income. The common assets that can generate income are publicly traded shares, savings accounts, fixed deposit accounts.

Do we need huge capitals to start investing? It could be 5% of the monthly salary or even 1% of the monthly salary.  If we start investing the investment would accumulate monthly and grow monthly. 

Increasing your net wealth can be done in two ways. You can increase the income, through multiple sources of income, investments increasing your asset base. Or you can reduce your costs. Reduce credit card expenditure which will result in decreasing both interest and debt costs.