How Well Do You Manage Your Finances?
We all want to live comfortably and attain financial stability but how many of us are good at handling our finances? When Covid-19 struck, it had major effects on people’s personal finances. The pandemic came with many uncertainties such as people losing their jobs, people getting pay cuts and others being completely unable to operate their businesses due to the restrictions and regulations that were put in place by the government to contain the spread of the virus. These outcomes resulted in difficult financial times for individuals. The pandemic was an awakening for many people to realize that it is important now more than ever to actively learn and practice how to manage their personal finances
Below are some of the ways you can manage your personal finances;
- Develop a good savings habit
One of the most successful famous investor, Warren Buffet said “Do not save what is left after spending, rather spend what is left after saving.” Most people do not consider this golden rule while saving and they find themselves with little or nothing left to save after spending. Saving is a habit that is cultivated with continuous practice. When putting aside money for savings, consider it as paying your future self. There are good tools that one can use to save such as an emergency fund for instance, Money Market Fund or term life insurance policies.
- Budget and track your expenses
Having a financial plan in place is essential in achieving your financial goals. Such a plan could be in form of a budget. A budget will give you the most control over your finances. Once you have a budget in place, it is vital to keep track of your expenses and ensuring that you are working within your budget. This will enable you to have a good outlook on where you are falling short in your spending habits and thereafter, work on it.
- Live within your means
When you aspire to get to a place of financial stability, living within your means is a key factor. This means your lifestyle should be aligned or even less than your earnings. More often than not, people find themselves in debt because they purchased something they could not afford. You can avoid a lot of financial problems when you make it a habit to live within your lifestyle.
- Improve your financial literacy
Financial literacy refers to possessing skills and knowledge that enable an individual to make insightful and effective financial decisions with their financial resources. Striving to improve your financial literacy will help you understand concepts such as saving, investing and debt. Investing in investment vehicles such as Money Market Funds is part of financial literacy. Ways in which one can improve their financial literacy includes;
- Reading financial books or magazines or online sources.
- Listening to financial podcasts.
- Talking to financial professionals.
- Getting financial management tools.
- Taking financial literacy classes.
- Set financial goals
A financial goal is a target to aim for when managing your personal finances. It can involve saving, spending, earning or investing. Creating a list of financial goals gives you a clear picture of what you are aiming for. An effective way of setting your goals is making sure they are SMART goals which stands for; Specific, Measurable, Achievable, Realistic and Time-specific. For instance; “I want to save Ksh.500,000 over the next 4 years to pay for my child’s university fees.”. You can set;
- Short-term financial goals – Immediate financial targets that can be achieved within one year. For example, saving for rent or saving for a holiday vacation.
- Mid-term financial goals – Financial targets that are achieved within a period of five years. For example, saving to start a business.
- Long-term financial goals – Financial goals that typically take much more than five years to achieve. For example saving for retirement.
Money management is a skill that is learnt overtime. When an individual actively tries to improve their financial habits, it makes it easier to achieve their financial goals.
“Financial freedom is available to those who learn about it and work for it.” ~ Robert Kiyosaki.