Without sounding biblical about it, there are a number of principles that have to be followed in order to have an effective personal finance portfolio. Some of these principles are acquired as the person navigates life and begins to understand their responsibilities.
Other principles can be picked up from personal finance course and other business related educational programs. The management of personal finance is a life skill that can never be discounted by anyone at any given time if they want to live comfortable lives. In this article we aim to look at some of the fundamental issues in personal finance management on an individual level:
1. It is imperative to maximize income wherever possible. If the person is able to work two jobs then they should not shy away from it because it will help them in the long run. However one has to also look at the tax implications so that they do not end up giving up huge chunks of their money to the state. If one is working two jobs the tax authority might decide to significantly increase the rates on the second job which makes it a complete failure.
2. Expenditure might be rationalized if it is under control within the personal finance basket. The budget is supposed to help the person to control their expenditure but some people simply put it out of the way and ignore its implications. With the expenditure spiraling out of control the personal finance budgets can become something of a challenge. The more disciplined members of the community will try to ensure that they never spend anything that they do not have.
3. This then leads us to the rather touchy issue of borrowing. I am not a fan of borrowing when it comes to personal finance. This is because there is a concerted effort to control the borrowing requirements of the family in order to save the family from the bailiffs. If one is to borrow it has to be a temporary or one off situation. If they are constantly borrowing then it might indicate that they do not have a grip on their personal finance and this cannot be a good thing under any understanding of the context. It is better to look at borrowing as the final alternative when everything else has failed.
4. Likewise the person should think carefully before lending money because the people might not pay it back on time. This can cause not only distress to the family but it can also disorganize the personal finance arrangements that have been agreed.
Although kindness tells us to lend to those who are in need we also have to consider the implications for the family if that lending is not supported by a realistic possibility of payback. One cannot do a credit check on their own but they should at least make an effort to only lend the money that they can afford to lose. That is a core principle in personal finance.