New year generally inspires new habits and goals for most people. We want to better relationships, good health, improve financial situations, and many more goals.
If you want better financial conditions in the coming year, then follow these 15 tips for improving your personal finances.
How to improve your personal finance in the New Year
Improving personal finances require proper planning and making the right decisions. It is based on the principle of save, invest and protect.
You cannot improve your financial situations when you have no idea about the situation itself. Therefore, the starting point should be the assessment of your current financial situation through a personal net worth statement. Net worth is simply the total of your valuable assets minus the total of liabilities. The net results and analysis can help you to develop realistic financial goals for improvement.
If you have been planning your finance, then proceed to the review and revision of your previous goals and action plan. If this is the first time, start with the basics of personal financial planning. Be clear and precise about what you intend to achieve in the year. Do you want to buy a new home, increase investment portfolio or save money for a particular course?
Clearly setting your financial goals makes it easier to work toward them. Do not forget to group them into short and long-term financial goals and manage them accordingly.
3. Prepared a Personal budget and track it
You will be surprised that most people cannot explain how they spend their monthly income. Why? Because they do not budget or keep track of their personal finances. Learn to prepare a family or personal budget by using a pen and paper method, Microsoft Excel or take advantage of free online tools such as Mint.com. Budgeting for what spend can immensely improve your personal financial situation over time.
As you welcome a new year, commit to spending within your means by not keeping up with the others. Your friends or neighbours might drive the latest cars or buy a new phone iPhone X but that doesn’t mean you should do the same. Think about it, they may have taken a loan from the banks to buy these things. You should not allow peer pressure to influence your debt or spending decisions.
There are four types of people in the wealth creation world, but the most unfortunate persons are the ones who love to live beyond their means.
5. Save and Invest at least 10% of your Net Income.
Save, save and save. Try to put aside 10% of your income into a saving account and then sweep the accumulated amount to an investment account say every 3 or 6 months. For example, you might invest in government Treasury bills or a fixed deposit with commercial banks. You can even start a small business if you dream of one.
People who regularly save are well on their way to an improved financial situation.
Related: 10 Reasons to Start Saving
6. Avoid impulse buying and buy things you need
Never purchase a major product or service without finding more information about it. Purchase of major items should be planned in all aspect. This allows you to assess different suppliers, arrange to fund and even understand other users experience. If you are buying something impulsively, let it be an item you needed not what you want.
7. Improve your financial literacy
Financial literacy is the starting point when it comes to managing and improving the personal financial situation of anyone. If you understand and apply the concepts of budgeting, savings, investment and compound interest, you are more likely to build wealth. That’s why everyone should make efforts to learns the basics of personal finance.
8. Avoid non-value added debts
Do not borrow and use the funds to buy items such as clothing, vacation, phones etc. They lose value over time and that is why such debts are called non-value added or bad debt.
You should take debt to make investments in products that gain value over time or provide returns and such investment includes properties, starting a business, health or for educational investment.
9. Earn income from more than one source.
With the increased lack of job security in today’s market, anyone could be asked to go home or face a salary cut at any time. Then, why not consider an additional source of income such as weekend class tutor, application developer, social media consultant etc. Better still, you can launch your own small business.
10. Invest in yourself and others.
Investment in knowledge, skill, health, and relationships with family and friends are few of the important ways of improving any life situation. There is very limited use of any wealth when there is no healthy mind, body or relationship.
As the name implies, this is the money you set aside in case of emergency. The fund is intended to help you pay for things that wouldn’t normally be included in your personal budget such as a layoff, health issues, major repairs etc. Emergency funds are usually stored in liquid accounts such as a savings or money market account that will give you immediate access to your money whenever you need it.
12. Pay off expensive debt.
Do you have any expensive outstanding debt? If your response is yes, then it is time to seriously plan to pay it back. Do you also know that interest rate of 25% on a D100,000 loan is equal to D25,000 annual interest cost?
Plan to pay your expensive loans from accumulated savings, salary increase or annual performance bonus. Your financial situations will improve if you repay the expensive debts.
13. Discuss Financial matters with your partner.
Coordinating spending activities with your spouse can lead to a happy relationship and at the same time improve the financial situation of the family. It can avoid unnecessary spending and duplication of expenses. If you’re married or living with significant other joint spending goals can help minimize conflicts over daily or weekly expenses.
Through our annual budgeting exercises, my partner and I discuss the holiday plan, school fees, rentals etc. We also review our finances on a quarterly basis particularly before schools reopen.
As Mahatma Gandhi said, it is unwise to be too sure of one’s own wisdom. It is healthy to be reminded that the strongest might weaken and the wisest might err. After creating the wealth, you need to protect it. You can either hedge or buy insurance. Hedging involves giving up the ‘upside’ in return for protection against the ‘downside’. Insurance is a defensive action aimed at protecting against potential adverse developments. Example of insurance includes property, auto insurance, medical insurance etc.
15. Create a giving circle.
If you want to donate to charity, but feel like your budget is too small to make a difference, a giving circle might be for you. Similar to a book club, it involves a group of friends getting together to jointly donate to a single charity, and often volunteer their time together as well.
The value of a man resides in what he gives and not in what he is capable of receiving. — Albert Einstein