Abasiakan DennyManaging personal finances is necessary to achieve financial stability, reduce stress and build wealth over time. Effectively managing personal finances requires key tips for budgeting, saving, investing and planning for a satisfactory outcome.
Set Clear Financial Goals
Setting financial goals is the first step to managing your finances. Financial goals are determinants of the direction your finances will go. The pecuniary goals may be short-term, e.g payment of school fees, medium-term, e.g. buying furniture or long-term, e.g. retirement.
Before setting your goal, consider your channels of income and monthly expenditures. Set SMART goals (Specific, Measurable, Achievable, Realistic and Time-bound). For instance,“ Save $15,000 to purchase a house within three years ” is a SMART goal.
I said earlier that you must consider your monthly income and expenditures. Your financial goals should be within the range your income can cover. Write your goals down and review them often,to keep them reminded of them.
Create a Budget
Budgeting is the heartbeat of effective personal finances management. A budget is your plan that highlights your income and expenditures. It helps you track how your money is spent and allocate funds for savings or other investment opportunities.
To create an effective budget, you have to list all your sources of income, e.g salary, rental services, business, etc. Group all your expenses, e.g school fees, utility bills, etc, as needs and wants. Prioritise your needs.
Remember, you will not always need what you want but will always want what you need. I hope it’s not confusing?
Use the 50/30/20 rule for your expenses. Allocate 50% of your income to needs,30% to wants and 20% to savings or payment of debts. Review your budgets and ensure they align with your financial goals.
Save First, Spend Later
Cultivate the habit of saving first before spending. Automated bank transfers can help you cut down on excess spending. Your savings should be the first point of call when you have money. Don’t wait until later to avoid the temptation of splurging before saving.
Saving at least three to six months’ worth of living expenses is a general rule of thumb as an emergency fund. Emergencies don’t give prior notice before striking. What you’ll want is to avoid getting washed away by its menaces.
Emergencies such as job loss, medical emergency, home maintenance, etc, need to be envisioned. Preparing for emergencies is not an expectation of their visit, but building a bulwark against its visit. For example, if you earn spend #100,000 monthly, aim to save #600,000 as your emergency funds over time.
Track Your Expenses
Tracking what, why and where you spend your money is crucial to maintaining financial stability. Also, keep a journal or use apps like Kuda, Qapital, PocketGuard, etc., to track your expenses.
Categorise your expenses into fixed costs, e.g house rent, and variable costs, e.g going on a picnic. Consider switching if you’re spending more on things with alternatives you can spend less on. For example, instead of using #15,000 eating salad in an eatery, when you can prepare it at home at #5000, consider preparing the salad at home..
Avoid making impulsive purchases. Purchasing goods and patronage of services driven by emotion will depreciate your finances and put you at risk of bankruptcy. Reviewing your expenses can help cut down your purchase of non-essential goods.
Master Debt Management
Avoid incurring debts as much as possible. If you have a current debt, focus on paying it off. Effectively taking notes of the tips discussed above can rid you of the burden of debts. If you must take debts, let it be for investment purposes.
Avoid taking debts for luxury. Debts taken and spent on wants will leave you in want. Focus on paying off the debts with the highest interest rate. Learn contentment with the available resources.
If you don’t have enough to live a luxurious life, invest in fruitful ventures, e.g real estate for a greater yield. Don’t be under pressure to prove a point that will point to financial instability and stress at you.
Start Investing Early
Start investing early. In this way, your money will grow exponentially, yielding interest on both your initial principal and the accruing interests. Investing early allows you to earn more over time. Diversify the investment options.
This way, you’ll be able to manage risks that accompany investments. Also, avoid the temptation of withdrawing the money early. Small investments can have massive dividends’
Hence, you shouldn’t wait for the “big money” before investing. Start Investing with the least you have. The consciousness it will create will sponsor consistency and higher investment options.
By following the above tips, you will effectively manage your finances and experience financial stability and independence.
