The subject of 'Financial Management' is not typically taught schools. It is difficult to approach this subject even with your family or closest friends. It appears that there is some taboo surrounding the subject of personal finance. Most of the time we, as adults, are left to our own devices to figure out how “Money” works. Because of this a large number of young adults, live with little to no savings and are burdened with consumer debts or student loans. They find it difficult to understand the basic financial principles. Sadly, this problem affects adults who have established careers as well as retirees.
I cannot stress the utmost importance of understanding and gaining knowledge on the fundamental principles of money management, regardless of your age, gender, job or social standing. It is a basic life skill that everyone must strive to learn.
You and you alone can change your financial situation. With few intentional lifestyle changes and hard work, it is possible for anyone to attain a comfortable degree of financial stability regardless of what your financial situation looks like today.
It is important to stress that you consult a qualified financial professional and do all necessary research before you invest in any financial product. It is crucial that you must exercise due diligence and understand the risks involved when it comes to finances.
Listed below are a few simple but useful tips on Money Management that can be incorporated in to your daily life.
1. Make a conscious and intentional decision to take control of your financial life
You must take an intentional decision to gain knowledge about money management, saving, and investing. Educate yourself on basic financial principles, savings, taxes, and investing. Stop telling yourself that you are not good with money or that you don't understand how 'money' works. Like everything else in life you must learn how to manage your money. Be responsible and make an intentional choice to gain control of your finances.
2. Create a budget
Always know how much you are earning and how much you are spending. Identify all your income sources, such as take home-salary, bank interest and any other income that you receive on a monthly basis.
Track your monthly spending. Take in to account expenses you pay on a yearly, or on a by-annual basis (eg- Insurance, Vehicle Revenue Licenses, Property taxes) and calculate the monthly cost of those expenses. Try to be accurate and honest. When you have a clear picture of your financial situation, you can start to take appropriate decisions and actions to improve your financial situation.
If your monthly income is higher than your monthly expenses, it is a good sign that you already have a good sense of money management.
However, if your expenses are higher than your monthly income, you need to start thinking about making some serious changes, either by cutting down on your expenses or by finding an additional job or side hustle to increase your income.
Basic steps to create a budget
3. Create a Bill Payment Calendar
Take your daily planner or calendar or a separate notebook and, write down all your bills and their due dates. Make it a habit to pay your bills on time and avoid late fees. Check your monthly bills carefully to see if there are any errors, or if you are being overcharged on something. Immediately, inform the utility company of the said error to ensure that it is resolved promptly.
4. Identify and take control of your bad spending habits.
Identify the types of non-essential purchases (handbags, shoes, beauty products, electronics, notebooks etc.) that is making a serious dent in your income. Learn what triggers you to buy these items. (eg:- when you are feeling stressed or when you feel sad) If you already have a stockpile of these items at home STOP buying them completely. Either, use them all up or minimize your collection. Donate the additional items to some needy cause. Self impose spending freeze for such unnecessary items for 3 to 6 months. Once the remaining supplies run out allocate a fixed amount of money to purchase those items per month. Exercise self-control. Learn to say “I can’t afford this and/or I don’t need this” and walk away from the shop.
5. Automate Savings
If you are an employee who gets his or her monthly salary directly deposited into your checking account set up an automatic transfer of a fixed amount of your salary to a separate savings account. If you have created a Monthly Budget you can determine, how much money should be automatically transferred to a different account. It doesn't matter how much you save at first as long as you start and continue to save. Establish a habit of saving money each month.
6. Save a 'Mini-Emergency Fund', and, a Proper 'Six Month' Emergency fund
A mini emergency fund can be additional sum of money that you leave in your checking account. Depending on your financial situation this amount could vary. It can be a weeks’ worth of your expenses, or if you are frugal, prudent, and financially savvy, you can have an entire months worth of expenses stashed away in your checking account. The purpose of a mini-emergency fund is to accumulate a small safety net to pay for any unexpected bills, fines or increases in utility charges. The main goal of such a mini emergency fund is to prevent being charged hefty overdraft fees.
Your Proper Emergency Fund should ideally have at least 6 months of expenses saved in it. (more money you have in the said fund the better). It is better to save the emergency fund in an easily accessible account. Save your Emergency Fund in an account where you can get some interest. This fund can be used in the case of actual emergencies such as, job loss, repairs to the home or vehicle or unexpected medical expenses. Never use this Emergency Fund to pay for unnecessary impulse purchases.
7. Try to build up multiple streams of income, passive income opportunities and side hustles to boost your income.
8. Save for your retirement
Set clear and specific goals as to when you want to retire and how much money you need for retirement. Start saving and investing for retirement when you are young and if it is possible start with your very first salary. Choose appropriate and wise investments for retirement that fit your individual needs. Educate yourself about your tax liabilities on your retirement savings.
9. Never save money at the expense of your health
Never skip buying medicines, or skip doctor’s appointments or check-ups. Don’t be so overwhelmed with work and stress that you neglect your physical health and mental well-being. There is no point of accumulating wealth if you are too sick to enjoy its’ benefits. Take a break and reset your mind and body. Learn to lead a healthy lifestyle.
10. Use credit cards responsibly
First, think long and hard before getting a credit card. Merely because you are eligible to get a credit card does not mean that you are financially responsible enough to own one. I admit, that the whole idea of owning a credit card is really enticing and makes you feel like a “real grown up”.
Understand your credit card policy. Read the fine print before you sign the contract. If you have a tendency to spend impulsively or have the habit of forgetting to pay your bills on time, use just one credit card and keep track of every purchase you put on that card diligently (or just don't get a credit card until you become financially responsible). Be mindful and intentional about your purchases and ask yourself ‘Do I really need this?’ and ‘Can I afford this?. Learn your credit card’s resettlement policy and repayment period, and make sure that you pay the credit card bill in full each month. Never carry a balance on your credit card because then you will have to pay a hefty sum as interest. Never use credit cards to pay for emergencies. (that's what the Emergency fund is for). If you use credit cards responsibly, you can gain certain benefits like cash back offers or loyalty points and help you build your credit score. But if you are not diligent about using credit cards, you will end up owing a massive amount of debt.
11. Learn to live a more minimalist and intentional life.
When you learn to adopt practices of minimalism in to your life, managing your money will get easier over time. It will help you not to spend on frivolous items that adds no value to your life. You will learn to use, appreciate and take care of your belongings. A minimalist lifestyle also helps you to learn that you don't need massive quantities of material possessions or money to live a happy, meaningful and fulfilled life.
I hope at least one person who reads this article will be inspired to lead a more intentional and financially responsible life.
Disclaimer - It is important to note that the above tips are my personal views and opinions on money management. These tips should not be considered as professional financial or legal advice. This information is general in nature, may not be suitable to your individual, financial or legal situation. Always consult a competent and qualified Financial Professionals and a Legal Professional before you chose any investment, and, do all necessary research and understand the risks involved before you purchase any financial product.