Personal finance management requires focus and self-discipline. Sure, it can be challenging at times, but it basically comes down to the principle of planning, saving, investing and budgeting. Today, I want to share 10 tips on how to improve your personal finance.
1. Decide on your Personal Finance Goals.
Be clear and precise about what you want to achieve. When I started working, my first personal goal was to be an accountant. I therefore spent most of my early savings on studying accounting courses.
Clearly setting your personal finance goals in anytime of your life makes it easier to work toward them. It is recommended that your goals are grouped into short and long financial goals.
2. Create your Savings Plan.
If you care about the future, you must creating it today. Start operating your savings plan. A plan where you would save about 5% to 15% of your income into a dedicated bank account. In fact, the first thing after receiving income is savings. When your wallet is tight, savings can help you in emergency situations or when opportunities knocked on your door.
3. Create Spending Plan and Track it.
Keeping track of your expenditure over a three-month period can offer insight into where 70% – 90% of your incomes goes. Do you know how much of your monthly salary goes to food, transport etc.? Mostly likely you don’t. This is a general personal finance management problem which can simply be solved by tracking your expenses. You can track expense with pen and pencil, Microsoft Excel or take advantage of free online tools. Go over every category of expenses and cut back as much as you can.
Budgets are the only practical way to get a grip on spending, and to make sure your money is being used the way you want it to be.
4. Remember these Investment Rules
There are two classic rules of investing: asset diversification and risk-reward trade-off.
- Asset diversification simply means you should invest your funds into different type of investment products or sector. Do not put all your eggs in one basket. If the basket drop, you may lose all your eggs.
- Risk and reward relationship: If you want higher rewards, you have to take greater risk. You should assess your investment objectives and risk profile, then invest accordingly. If you like to know your money is safe, you probably want to keep it in more conservative investments such as fixed deposit, money market funds, treasury bills etc.
The more you know about financial instruments’ benefits and risks, the better off you’ll be when it comes to investing your money.
5. Start early and Invest often.
Start saving as soon as you started earning. Starting investing as soon as you started saving. For example you might invest some funds in Treasury bill or any other money market funds as your savings grow. The power of compounding means saving early will lead to a much bigger value in future.
6. Create a Giving Circle.
The value of a man resides in what he gives and not in what he is capable of receiving. — Albert Einstein
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.
7. Be Yourself and do not try to Keep up with others.
Your friend or neighbor might drive a nice car or buy the latest gadget but that doesn’t mean that the person is more successful than you. It may that you have different financial goals. Think about it, they may have taken consumer loan from banks to buy these things.
Be who you are and spend on what you think is important for you, because the people you think about usually don’t matter in your personal finance decision.
8. Invest in Yourself.
As you make some money, always consider to invest in yourself. Personal development and education is an important part of personal finance. Whether it is an intellectual pursuits, spiritual, technical, athletic or moral, we must resolve to learn for us to grow.
Don’t forget to also invest your time and money in others too.
9. Insure your Assets.
After creating the investment assets, it is important you protect some of these assets through insurance. Insurance is a defensive action aimed at protecting against potential adverse events. Example of insurance includes auto insurance, home insurance, medical insurance etc.
10. Do not take Consumer Loans.
Do not take loan and use it for consumption. These are loans you borrow to spend on consumption items such as holiday, private cars, clothes, phones etc. The opposite is investment or value added loans. Investment loans are used on investment products such as education, starting a business, buy compound etc.
The truth is consumer loans are repaid by another income sources such as salaries whiles investment loans are expected to repay themselves (self-liquidating). Also remember that borrowing is using money you have not earned.
If you work hard on the principle 1 to 9 above, you will hardly require for consumer loans.
These are my 10 personal finance tips, what do you think or do you want to add more. Please share them in the comment box.