Even though knowing how to take care of your personal finances is a vital life skill,
you may feel your money-management talents are somewhat lacking.
Fortunately, you can take steps immediately to improve your financial insight and gain confidence.
Keep a daily checklist. Reward yourself when you’ve completed everything on the list for the week.
Sometimes it’s easier to see what you have to do, than to rely on your memory.
Whether it’s planning your meals for the week, prepping your snacks or simply making your bed, put it on your list.
Make a list of all your needs and goals. Managing day-to-day living expenses comes first.
Other needs and goals could be:
- Being debt-free
- Having emergency reserves
- Having health insurance
- Meeting retirement needs
- Saving enough to get married
- Wedding dinner
- Honeymoon tour
- Getting a flat
- Paying for your children’s education
Work out how much you need for each goal or need.
For some, it could be an amount that you need to pay regularly, e.g. home loan instalments, health and life insurance premiums.
For goals like retirement savings, it could be a lump sum amount at your desired retirement age.
If it’s paying for your children’s tertiary education, you might find that a combination of savings and loans works best for you.
When projecting future values, take into account current prices and projected inflation.
Many people feel trapped by their bad financial situations.
Working through them seems like a far-fetched dream, and getting past them is impossible.
Personal finance learning can be addictive.
Even a little improvement in your money-management skills can encourage you to refine your skills further.
List out all the resources you have, such as your salary and wages, any bank savings or investments like shares or unit trusts.
If you have any insurance products which are bundled with investments or savings, like whole life participating policies, investment linked plans or endowment plans, do list out how much protection you are getting and the value of the investments portion.
Also make a list of all your liabilities or outgoings – there are household expenses to pay, debts you owe (e.g. home loans, car loan payments), credit card balances, health and life insurance premiums, taxes and so on.
Use a budget to help you manage your income, spending, debt and other liabilities prudently.
The aim is to take care of your basic living expenses as well as put aside amounts for savings and investments to meet your other goals.
Making a budget and sticking to it will help get your finances in order.
There are many budgeting programs currently available on the market.
By using these types of programs or writing out your budget longhand, you can pinpoint you spending habits.
Having a budget is vital for holding your spending on a short leash.
Review it from time to time to make sure it still works.
Where did my money go?
You can’t cut down on some expenses, for example, your taxes, conservancy charges and utilities bills.
Once you have incurred a debt or committed to an insurance policy, you will need to keep up with repayments or insurance premiums.
So think hard about what you really need and can afford before you commit to either of these.
Do your best to control your emotions. Do not let greed or stress dictate your actions.
Always take your time before you make a decision, and if you are not sure, perhaps you should not do it.
If you notice that you are getting particularly stressed, you should take a break.
Remember you should avoid taking on execessive debt.
As a guide, try to limit your debt ratio to 35% of your monthly income.
In the case of life insurance, consider getting basic life insurance like term insurance if you want to keep insurance premiums manageable.
What is there in your daily habits that you could eliminate from spending?
A latte, pack of cigarettes or bottle of wine?
These expenses are small ways of taxing yourself out of saving.
If you cut out this expense on a daily basis, and put the money in a savings account instead, you could be amazed at the total by years end.
Having a strong grasp on your personal financial situation is key to long term success.
Planning your savings and investments to help you reach your goals
Here are some tips to help you put your plan together:
- Prioritise your goals.
- Work out how much resources you now have and how much more you will need for your goals.
You might have $10,000 in savings today but want to save $300,000 for retirement in 30 years’ time.
- Identify suitable action steps to help you close the shortfall and reach your goal.
- Limit borrowing to only when it is really necessary.
- Do consider the range of financial products and investments available to you.
- To reduce risk, you should as far as possible, maintain a diversified portfolio of investments.
- Remember to include in your budget the amounts you are investing or saving regularly.
- Monitor your investment portfolio regularly: review the current and projected values and see if their growth is on track to meet your requirements.
- Keep track of factors that affect our plans if there is an increase in the projected costs for certain goals.
- Review your financial plan regularly and adjust it when your resources, needs and situations change.
- Be prepared to save more, cut back expenses, or even reprioritise your goals.
A financial plan should grow and adjust depending on the life stage you are at.
Generally, the earlier you take action, the more time you have for your savings and investments to grow.
There are so many products available in the world of finance that it becomes necessary to arm yourself with the knowledge it takes to make the right decisions for you.
Make the best use of your money, while ensuring that you are up to speed on your personal finance opportunities.