Personal Finance Management: Detailed Guide

Personal finance management is a difficult and ongoing undertaking that can cause even the most financially savvy person to become confused or short-sighted. Indeed, in a world where assets and investments move swiftly and we can link our bank accounts to a plethora of services and make purchases with the click of a button, finance management is a more difficult idea to grasp than ever before. Making the most of your money needs constant awareness and intelligent thought. Here, we’ll go over some of the fundamentals of personal finance management in today’s world, including some apps and software to help you get started.

What is Personal Finance Management?

Personal finance management is the process of planning and managing personal financial activities such as earning an income, spending, saving, investing, and protecting one’s assets. A budget or financial plan can outline the process of managing one’s own finances.

Personal finance is divided into five categories: income, spending, saving, investment, and protection. Each of these topics will be discussed in greater depth below.

#1. Income

Income is a source of monetary inflow received by an individual and used to maintain themselves and their family. It serves as the foundation for our financial planning process.

The following are common sources of income:

Salaries
Bonuses
Hourly pay
Pensions
Dividends

All of these sources of income create cash that can be spent, saved, or invested. In this way, income is the first step on our personal finance road map.

#2. Spending

Spending comprises all expenses incurred by an individual in connection with the purchase of goods and services or anything consumable (i.e., not an investment). All spending is classified into two categories: cash (paid with cash on hand) and credit (paid with borrowed money). The majority of people’s income goes toward spending.

Common spending sources include:

Rent
Payments on a mortgage
Taxes
Food
Entertainment
Travel
Credit card transactions

All of the expenses outlined above diminish the amount of money available for saving and investing. A deficit exists when an individual’s spending exceed his or her income. Managing expenses is equally as crucial as earning money, and most people have more control over their discretionary spending than their income. Personal finance management requires sound spending habits.

#3. Investing

Saving refers to extra money set aside for future investing or consumption. If there is a difference between what a person earns and what they spend, the difference might be used for savings or investments. Savings management is an important aspect of personal finance.

Savings methods that are commonly used include:

Actual money
Savings account in a bank
Bank account verification
Securities in the money market

Most people save money to manage their cash flow and the short-term difference between their income and expenses. Having too much savings, on the other hand, can be considered a bad thing because it earns little to no return when compared to investments.

#4. Investment

Investing is the acquisition of assets that are projected to create a rate of return in the belief that the individual would get more money than they first invested. Investing involves risk, and not all investments have a good rate of return. This is where we see the risk-reward relationship.

Among the most common types of investments are:

Stocks
Bonds
Investing in mutual funds
Property investment
Private businesses
Commodities
Art

Investing is the most challenging aspect of personal finance and one of the areas where consumers seek professional help the most. There are significant disparities in risk and reward among various assets, and most people seek assistance with this aspect of their financial plan.

#5. Security

Personal protection encompasses a wide range of things that can be used to defend against an unexpected and negative incident.

The following are examples of common security products:

Insurance for life
Health coverage
Estate preparation

This is another area of personal finance management in which consumers often seek professional help because it can become rather complicated. To correctly estimate an individual’s insurance and estate planning needs, a thorough examination is required.

Personal Finance Management Procedures

Having a solid plan and sticking to it is the key to good personal finance management. All of the aforementioned aspects of personal finance can be incorporated into a budget or a formal financial plan.

Personal bankers and financial advisers who work with their customers to understand their requirements and goals and determine an appropriate course of action are typically responsible for creating these plans.

In general, the following are the primary components of the financial planning process:

Assessment
Goals
Plan creation
Execution
Monitoring and re-evaluation

The Best Personal Finance Management Software in 2023

Here are some of the best personal finance management software in 2023

#1. Quicken

Quicken is a well-known tool for managing personal finances, and while its reputation was founded on a desktop version, it is also available as a mobile app.

The software provides a comprehensive set of financial reporting features. These revolve around a variety of topics, including budgeting, bills, accounts, and even investments. It allows you to input your purchases and income for budgeting purposes, allowing you to compare the two to get a better understanding of how much you are spending vs how much you are earning.

In terms of bills, you can see which utilities and such services you are constantly paying, as well as the amounts owed and how much money you have left over. For accounting purposes, you can even combine your banking and credit card payments in one location so you know exactly how much you’re paying out. This is especially useful because consumers frequently underestimate how much simple purchases might add to prices.

It also allows you to track your investments, whether they are part of your savings, investment portfolio, or 401k pension plan. This means you know how much your savings and investments are worth, albeit you shouldn’t be concerned about short-term changes in the stock market.

Quicken combines your budgeting, banking, and investment reporting into a single dashboard that you can access from your desktop or even your cell phone via the mobile app.

#2. YNAB

YNAB – short for You Need A Budget – is here to tell you exactly what to do if you need it. Because, hey, if you don’t want to spend every last penny you have, you definitely need one. Maybe you have more money than you imagined.

YNAB’s primary objective, as you might think, is to assist you in controlling your spending and avoiding living paycheck to paycheck. Stick to the plan, moderate your spending, and YNAB will soon see you spending last month’s money rather than the money you just earned.

It’s simple to set up, supports the vast majority of transaction data downloaded from banks, and appropriately configures itself for personal or small company use by adjusting its monetary categories based on your requirements.

If you get off track, YNAB, which is surprisingly merciful and understanding for a piece of software, will inform you what you need to do to get back on track. You’ll have to make some concessions, but if you need guidance, this stands out from Quicken.

#3. BankTree

BankTree is glad to handle global currencies and does a good job if you’re working with more than one at the same time, presenting balances in different currencies rather than rounding them up to a single total. It’s also useful for keeping track of everything, as its mobile app allows you to scan receipts and input them later.

It’s not the prettiest software, and it’s a little more difficult to use than many of its more polished counterparts, but BankTree produces highly useful reports that can be broken down by time or payee. It might be worth testing with the free trial before investing in this one.

The desktop software includes one year of updates and support, but you are limited to one PC and must pay for any additional PCs on which you want to run the software. A browser-based version is also available.

#4. Buxfer

Buxfer, an online tool that isn’t overburdened with effects and colors, does an excellent job of presenting your finances in a clean, professional manner. It cutely boasts that it is currently assisting its users in managing over four trillion dollars in funds, indicating that it has a strong user base.

If you’re hesitant to give Buxfer your exact banking information, you may choose for offline manual synchronization with your bank account instead, but if you do, there’s a layer of high-level encryption to protect your data and the company is frequently audited.

We like its budgeting capabilities the best – the visual reporting is excellent, and the fact that it doesn’t force you into predefined categories and instead lets you to classify spending however you see appropriate means that Buxfer should fit comfortably into the majority of people’s banking life.

The free version offers five budgets, accounts, and bill reminders; the Pilot version has automated tagging and bank syncing; the Plus version includes unlimited budgets; and the Pro edition includes online payments, advanced forecasting, and other features. Get it all with the Prime version.

#5. HomeBank

If you work on various platforms or do not use Windows by default, HomeBank will be appealing. HomeBank, which is available for Windows, macOS, and Linux (with an Android app in the works), may be installed normally or as a portable software, and it makes personal financial easy to understand. If you’ve been using another tool to manage your accounts, such as Quicken or Microsoft Money, you can import data to avoid having to start from scratch.

You can add an unlimited number of accounts to the application, and they can be linked to allow for easy money transfers – all of this is entirely dependant on human editing. With enough data entered, all sorts of reports can be generated, including useful forecast reports for car ownership and the like. This is a personal finance app for individuals who despise personal finance applications, and it was created with the typical person in mind.

Personal Finance Management Apps

These apps assist users in creating monthly budgets and spending plans, as well as providing useful advice on difficult financial matters. Unless otherwise specified, all are compatible with Android and iOS devices, as well as desktop and laptop computers.

#1. Personal Capital

Personal Capital is a robo-advisor that generates revenue by maintaining its users’ investment portfolios rather than recommending third-party financial goods and services.

That is, its budgeting tools do not include any sales pitches for anything other than Personal Capital’s wealth management service, which is not available to individuals with less than $100,000 in investable assets.

There’s a solid lineup of free personal finance information and budgeting tools available for customers who don’t want or can’t afford to manage their money or hire financial planning services with Personal Capital.

These include retirement and education planners, which can help you estimate the cost of two main life goals (and how much you need to save and invest to achieve them), as well as a fee analyzer, which can reveal the exact cost of your managed investments.

You may also use the investment checkup option, which is an allocation analyzer that is a blessing for do-it-yourself investors who don’t rebalance their portfolios on a regular basis.

#2. Tiller Money

Tiller Money combines the granularity of traditional spreadsheet-based budgeting with the ease of a cloud-based app that syncs with nearly 20,000 external financial sources, including bank accounts, brokerage accounts, employer-sponsored retirement accounts, and credit products such as credit cards and personal loans.

Your U.S.-based financial institution should be in sync with Tiller regardless of where you bank, borrow, or invest.

Tiller auto-categorizes transactions gathered from your connected accounts and updates custom-created Google or Excel spreadsheets daily, theoretically providing spending tracking for every dollar you earn. A $50 grocery store purchase today, for example, appears as a “Groceries” or “Food” transaction tomorrow (depending on your option).

Because you’re always in charge of your own classification criteria and color scheme, your spreadsheets should always be simple to understand, even if you don’t check them every day (or week). If you’re unhappy with your existing spending categories, you can always manually recategorize synced transactions.

Tiller has an optional email alert tool that sends you a daily digest of your transaction activity. If you manage your finances with a spouse, domestic partner, roommate, co-parent, or anyone else, or if you have a professional financial planner assess your cash flow on a regular basis, you can securely share your spreadsheets with them.

Tiller Money provides a 30-day risk-free trial after sign-up. During this time, you may cancel at any time without penalty. Tiller costs $79 per year once the trial period finishes.

#3. MoneyPatrol

MoneyPatrol is a budgeting program with a dashboard that connects to hundreds of bank accounts, including atypical spending reserves such as gift cards and prepaid debit cards.

If you dislike spreadsheets and prefer not to create rule-laden budgets, MoneyPatrol is for you – the Alerts & Insights feature, which gives bite-size chunks of information through text or email, is the heart and soul of its budgeting operation.

If you want to delve into the nitty gritty of your budget, MoneyPatrol provides plenty of charts, tables, and panels to show you how you’re spending your money and where you may improve.

After a 15-day free trial, MoneyPatrol costs $59.99 per year.

#4. Douugh

Douugh is an automated money management tool that keeps your finances in line without requiring you to do too much (or anything at all). It works with Android and iOS devices and effortlessly interacts with the Cash App, PayPal, Venmo, and Apple Pay.

Douugh’s engine is Salary Sweeper, an automatic financial organization tool. Salary Sweeper transfers revenue to one of three sub-accounts (Jars) based on what it learns about your financial flow:

Bills for short-term expenses that you expect to incur in the next 30 days
Savings that can be further segmented for certain aims
Grow, a sub-account for automated investment.

If Douugh does its job — and it usually does — you should never be caught off guard by an unpaid payment or overdraft, and you should stay on track to meet your long-term financial objectives. Meanwhile, you may be confident that the entire sum on your Mastercard debit card (free with your Douugh account) is secure to use.

#5. Chime

Chime is one of the best online financial apps for a variety of reasons, not the least of which is their early paycheck guarantee. Some direct deposit customers receive their paychecks two days sooner than usual (usually on Wednesday rather than Friday).

Chime also does not charge any hidden costs, which gives it a considerable advantage over traditional banks.

Chime’s spending account, which is essentially a checking account, includes a fee-free Visa debit card that is accepted at millions of businesses globally. An optional savings account is an excellent location to keep funds that you don’t need right now, but keep in mind that withdrawals are limited to six every statement cycle by law.

The automated savings feature is a rules-based tool that allows you to automatically transfer up to 10% of each salary to your savings account without having to do so manually each time.

What Are the 5 Main Components of Personal Finance?

Personal finance is divided into five categories: income, savings, expenditure, investing, and protection.

What Are the Four Pillars of Personal Finance?

Personal finance is built on four pillars: assets, debts, income, and expenses.

What Is the Best Way to Manage Personal Finances?

The greatest approach to save money is to put some money aside each month in a savings account.

What Are 7 Steps In Personal Finance?

Set objectives.
Risk evaluation
Examine the Cash Flow
Safeguard Your Assets
Examine Your Investing Strategy
Think about Estate Planning
Implement and monitor your decisions

What Is the 50-30-20 Rule?

The concept is to divide your money into three areas, spending 50% on necessities, 30% on desires, and 20% on savings.

What Are the Golden Rules For Managing Finances?

The golden rule of money saving is to “save before you spend,” often known as “pay yourself first.” Another prominent money-saving rule is to “save for the unexpected,” or to create an emergency fund. Using these criteria to prioritize saving money can help you build a safety net while also working toward other financial goals.

In Conclusion

Here, we have outlined the fundamental concerns of a responsible person’s approach to personal financel management, as well as software available for implementation. The most critical stage is to develop a solid understanding of what makes a comprehensive financial plan. However, when you begin to execute the suggestions in this article, keep in mind that education should never end when it comes to money management. Continue to learn and adapt by reading current publications, consulting specialists, or simply staying on top of any news and data important to your money.