Personal Finance: How to Allocate and Manage It?

Do you know exactly how much money you earned last month? And how much of it did you spend, saved, or invested? Did you have to tighten your belt halfway through the month just to get by until your next paycheck or income? If you answered "no" to any of these questions, it means you’re not managing your personal finances well enough. To make life easier and avoid financial stress, top experts recommend managing your finances. In this article, you'll find answers to key questions: What are personal finances, how to manage them, how to distribute finances, how to pay off debt faster, how to save, and how to start investing and earning from it.

 

What are personal finances?
Personal finances are not just the cash in your wallet or the money in your bank account. In fact, they encompass your personal or family income, expenses, debt, savings, and even investments. Unfortunately, many people still pay too little attention to financial literacy and managing personal finances. Proper financial management can help you pay off debts faster, cover everyday expenses, save, or earn through investing, step by step leading to financial freedom!

 

Managing Personal Finances
Many people think that anything related to money is complicated, especially when it involves technical terms. But there's no need to be afraid, as managing personal finances is not as complicated as it seems. It all starts with four important rules:

1. Your expenses must be lower than your income. This can be achieved either by increasing income or reducing expenses.
2. You must have a financial cushion—savings to protect you in case of unforeseen circumstances.
3. Prepare for large expenses in advance without dipping into your emergency funds.
4. Borrowing is acceptable but must be done responsibly after considering all risks and possibilities.

These key rules can help you successfully manage your personal or family finances, giving you security and stability.

 

How to Distribute Your Finances
A common question is how to distribute finances while still feeling secure, even with commitments. The first and most important step is setting a financial goal. Whether you want to build a financial cushion, buy an expensive item, pay off debts, save for your first investment, or something else, having a clear goal is essential. From there, you need a concrete plan, which includes creating a personal budget, allocating your expenses appropriately, paying off debts quickly, selecting the right savings strategy, and monitoring and analyzing your finances.

 

Monitoring and Analyzing Personal Finances
Personal budget planning starts with evaluating your current situation. Begin by writing down your exact financial picture—your income (salary, allowances, child support, investment income, extra activities, etc.) and financial obligations (debts, loans, credits). Also, review your spending habits—what do you spend money on, do you save, and if so, how much? After performing a financial analysis, it's time to create clear budget rules.

 

Creating a Personal Budget
Planning a budget and managing it wisely ensures that you won’t run out of money unexpectedly, that you'll pay off debts on time, live comfortably, and even save. Setting up personal budget rules and sticking to them is crucial. The first rule is to start planning your income and expenses carefully. Another equally important rule for financial well-being is creating an emergency fund or savings reserve for unforeseen events. It’s also important to save for long-term goals like home purchases, retirement, travel, education, or other life milestones.

 

How to Distribute Your Expenses

There are many ways to distribute your finances and various spending strategies. Some financial experts recommend the 50-30-20 rule. What do these numbers mean? 50% of your income should be allocated to essential expenses (housing, food, transport, healthcare, utilities), 30% to flexible spending (clothing, leisure, cultural events, unplanned purchases), and 20% to savings and investments.

Another popular method is the "6 jars" rule, where finances are divided into six parts: 55% for daily expenses, 10% for long-term purchases, 10% for educational costs (seminars, training), 10% for entertainment, 10% for investments, and 5% for charity.

These are just two expert-recommended ways to manage your finances. Whatever method you choose, it’s important not only to follow the plan but also to take other essential actions.

 

Paying Off Debt
A crucial step in personal financial management is effectively handling debt. Whether it’s a large or small loan, paying it off on time is essential. Debt usually increases expenses, as you must pay the borrowed amount and interest. The faster you pay off your debts, the more you save. If you have multiple loans or credits, specialists often recommend loan refinancing—combining all debts into one. This way, you can save money, extend loan terms, or adjust payment amounts. Having one loan is also easier to manage than several.

 

Personal Finance Saving Strategies
Successful personal finance management also includes saving. Saving becomes easier after performing a detailed expense analysis, which helps identify unnecessary purchases and habits. Reducing or eliminating unnecessary expenses means saving more.

Another useful strategy is never going to the store hungry. It may sound funny, but when hungry, people tend to spend more on food, especially snacks. Going shopping with a list of necessary items also helps save by avoiding impulse buys. Moreover, reducing emotional, impulsive purchases is a significant way to save.

 

Personal Finance Apps
Did you know that you can track your personal finances not just in a notebook but also on your phone? Smart technologies today can simplify many daily tasks, including managing and saving your finances. There are several apps available for tracking expenses, income, planning budgets, and saving:

1. Daily Budget: A simple app that helps track your daily budget. Enter your income and monthly expenses, and it automatically calculates your daily spending allowance and recommended savings.
2. Nerd Wallet: Based on the 50-30-20 rule, this app helps you allocate finances with a focus on reducing debt.
3. My Wallet: Allows you to track not only your own but also your family's budget, making it easy to register all expenses and group them by category.
4. Spendee: A popular app that helps monitor your finances with automatically generated reports. You can categorize expenses and even input them by photographing receipts!

Other useful apps include **Pocket Guard**, **Acasa**, **Monefy**, **Tosh Finance**, **Goodbudget**, and more.

 

Personal Finance Investments
Personal finances aren’t just about your income, daily expenses, or savings—they’re also about investments. Properly managing your budget not only involves smart spending but also making your money work for you through investments. Even small investments can pay off. If you want your financial management to generate profit, consider investing. Some people prefer regular investments, while others opt for irregular ones. For those new to investing, loan investing may be a good starting point. For example, the crowdfunding platform **Profitus** offers favorable options for beginners, with investments starting from as little as €100 and an average return of 12.14%. Importantly, investments are always secured by real estate.

Investing, and financial management overall, is one way to achieve financial stability, security, and even freedom. To improve your financial situation, it’s crucial not only to manage your income and expenses well but also to save or invest a portion of your money. However, one important thing to note—if your goal is to save or quickly pay off debt, it shouldn’t diminish your quality of life. Saving doesn’t mean giving up things you enjoy; it means reducing expenses while maintaining your standard of living.**