Becoming mindful of how you spend, save, or invest income is about security and risk minimization. Learn these foundations in personal finance to become powerful in managing money. Start with becoming conscious about your money personality type and turn your money-handling habits to your advantage. Personal finance management involves the key actions of saving, investing, and minimizing risks.

Table of Contents

• Determine Your Money Personality Type to Learn Foundations in Personal Finance
• Move from the Debtor to the Investor through Budgeting
• Start Changes with the Goal
• Become Debt-Free Gradually
• Diversify Your Savings and Investments
• Manage Taxes and Insurance
• Engage in Continuous Learning
• Review Your Buying Behavior

1. Determine Your Money Personality Type to Learn Foundations in Personal Finance

To manage personal finance, it is first important to understand the following things:

• What are your buying decisions?
• Are you an impulse buyer?
• Do you save money through making conscious buying decisions and planning?
• What is your risk tolerance?
• How does lifestyle creep or inflation affect you?

Start with this simple quiz to get an answer on your money personality.

Different studies categorize money personality types differently. The quiz above is based on the categorization presented in the article by Smith (2025), considering whether the person makes impulsive purchases, looks for bargains in buying, saves and invests, or lives in debt:

• Spender
• Saver
• Shopper
• Debtor
• Investor

Each personality type is about the level of financial freedom. Move from the limits of the debtor to the freedom of the investor.

2. Move from the Debtor to the Investor through Budgeting

Budgeting is the next step to change your money personality type from the debtor to the investor and get more freedom:

• Categorize expenses into types in your budget.
• Start paying off your debts gradually and include the debt in the category of essential expenses.
• Set specific limits for non-essential expenses.
• Include the Emergency Fund and the Buffer Fund to ensure security and minimize risks.
• Pay Yourself First, that is, put aside money for your Emergency Fund first.
• Adjust the budget monthly.
• Start investing gradually.
• Invest small amounts for several months, increasing the sum gradually.

3. Start Changes with the Goal

Even a small change starts with the goal. Learn how to set goals that have deadlines (time-bound) and which can be measured with realistic results. They are called SMART goals.

For example:

• Invest 5% of income in stocks for 1 year and measure results.
• Reduce expenses on unnecessary items by 20% in 6 months.

Set Short-Term and Long-Term Saving Goals

Create 2 types of savings:

• Short-term savings for the Emergency Fund for a year.
• Long-term savings for your retirement.
• Make these types of savings automatic from your bank account.

4. Become Debt-Free Gradually

Your debt should be treated as an essential expense, and paying off it should be the first step in moving from the debtor to the investor.

There are two ways to pay off debts:

• Snowball tactics: Start with dealing with small debts, stop taking new loans, and move gradually to greater debts.
• Avalanche tactics: Start with addressing greater debts.

5. Diversify Your Savings and Investments

Diversification is the key to minimizing any risks. If you lose in one area, other categories can help cover losses.

You need diversification in both:

• Savings: categorize savings into Emergency-Fund savings, high-yield saving account, Buffer-Fund savings for the most unexpected cases.
• Investments: retirement plan (401(k), etc., assets (stocks, bonds, exchange-traded funds (ETFs) – the case where you invest in the fund that owns assets like stocks of companies).
• Diversify stock investments in different economy sectors (for example, by buying 30 stocks of a healthcare company, 30 stocks of a technology company, etc.).
• Buy stocks of companies that offer dividend payments.
• Stay calm in case of a stock price decrease: do not sell it and instead aim for long-term investments.

6. Manage Taxes and Insurance

Keep track of your taxes and consider them when planning your budget .

Take into account taxes on dividends and learn how to optimize deductions. Education and continuous learning are a must.

Find insurance options that can meet your needs and minimize risks:

• Health insurance for minimizing risks,
• Life insurance,
• Disability insurance, etc.

7. Engage in Continuous Learning

Educating yourself about foundations in personal finance is important to address any changes that can affect you on time. Dedicate several hours a week to learn about financial matters and investments. It can help you create a customized financial management plan that can tackle your personal needs.

Find free courses in financial management on the web.

Start reading financial magazines and newspapers at least once a week, for example, Harvard Business Review, The Economist, or Investopedia, which offers tons of information on various financial topics.

If you reach the level of investor, learn how to conduct fundamental analysis of companies to detect undervalued stocks:

• Analyze company’s statements to determine changes and detect growth or a declining trend,
• Find out what companies are competitors and how they perform,
• Analyze the market and industry in which the company operates.

Learn about compound interest. It is the interest earned from the initial sum plus interest on it. You can invest some sums of money monthly. So you should calculate the initial sums, monthly investments with interests accumulated.

8. Review Your Buying Behavior

To get more financial freedom, it is necessary to review your consumer behavior:

• Get rid of peer and marketing pressure to buy new trendy things that in fact may be unnecessary;
• Buy what is really needed;
• Analyze information in ads.

Learn about bait and switch cases, whereby companies entice the buyer with an attractive offer (price or quality), but in fact the product turns unavailable. In this case , companies offer a more costly alternative.

Search for products that present a balance between quality and price.

Takeaways

• Learn about your money personality type,
• Set the goal to become an investor,
• Move gradually, but consistently,
• Save monthly, even the smallest sums,
• Minimize risks,
• Diversify, diversify, diversify,
• Deal with debts, taxes, and insurance,
• Become a conscious buyer.

Reference

Smith, L. (2025, January 12). 5 money personality types: Which one are you? Investopedia. https://www.investopedia.com/articles/basics/07/money-personality.asp