Time to Take the Boring Out Of Personal Finance
Personal finance management seems like a daunting task. Since financial literacy is not a part of our schooling, initial management of personal finances can send you spiraling down a rabbit hole; living paycheck to paycheck, accumulating debt and spending on non-essentials.
Even though the task of managing your personal finances can seem distressing and boring, it can be easily tackled through a few steps. Think of the management as a game with 2 basic rules; Spend and Save:
- Spend within your budget
- Save a certain percentage of your income (we recommend 10%-20%)
Now that the rules have been set, let’s get onto our game plan.
Devise your budget AND STICK TO IT:
Outlining your budget may seem time consuming and confusing but once broken down into steps, the task can be done quickly and efficiently.
- Make a list of your essential expenses, these include: Rent/Mortgage payments, utility bills including internet, Transport, grocery and mobile phone expenses and assign budgets. These are the first expense items you need to pay out from your income. Although some of these expenses such as rent, and internet are fixed, you can save on grocery and utilities.
- The second payment is assigned to debt if you have any. This includes auto loan, student loan, credit card loan, personal loan or any other debt items that need to be paid out. Not paying your debt dues on time can not only lead to poor credit history making further financing hard but also lead to accumulation of interest fees compounding the principal amount and further putting pressure on your pocket
- Thirdly, come the home maintenance and clothing budget.
- Finally, the “Treat Yourself” budget. After your have made all essential payments keep a reasonable amount for fun activities such as movies, eating out, domestic travelling etc.
Managing your personal finances doesn’t mean never eating out or spending the entire year with 2 clothing items. It just requires prioritization of essential expenditure and reasonably spending on recreational activities. Many people make the crucial mistake of spending on non-essential items such as blowing your entire budget on a week of eating out and then using credit card to pay off essential expense, hence getting stuck into the vicious cycle of poor financial management.
Fortunately, there are several apps that now aid in budget management; Wallet, You Need a Budget, Wally and Honeyfi are the top recommended ones. They help you put all your expenses in one place, provide notifications when you are reaching the limit for your budget or if there are unpaid essential expenses that need attention and track your spending anytime anywhere you want. Devising the budget is only the first step, the main rule is to stick to it religiously.
EXTRA TIP: Teamwork is always key to winning at any game. Involving your spouse or family in your personal finance management can help ease the financial burden and offer support through the process. It could even be fun!
Saving For The Rainy Day:
Before you pay anyone else, pay into your savings account first. Life can be unpredictable and uncalled for expenses can pop-up without any warning. As a rule of thumb, one should have saved worth 4-6 months of living expenses incase you lose your job or leave it to start something of your own. Saving might seem impossible but like budgeting, once broken down into smaller steps, it is quite manageable and ultimately rewarding in the future.
- Know what you are saving for: a vacation, a new car, a new house or putting into your retirement fund. Setting a goal means you are not only motivated to save but also have an idea of how much you need to put into it.
- Get a basic checking account. Hidden fees for current accounts offered by banks such as fee for not maintaining the minimum balance, cheque book processing fee, financial services fees (seriously!) can quickly add up and blow your budget. Ask for basic account which has no requirement for minimum balance and start putting in your savings in the account. Later, once you have accumulated enough savings you can learn about other options.
- Dedicate a certain percentage of your income to saving regardless of any circumstances. Depending on your other expenses, save no less than 10% of your income every month. The more you can spare the better
EXTRA TIP: Investing money is a good idea given that you carefully analyze the investment opportunity and the ROI including the time it will require to get the required ROI. Extra income means more “Treat yourself” budget!