Growing up, you learned how to do things right.
You went to school, got good grades, and now you've started working.
The paychecks are coming and you are happy to receive them.
You may have worked for 3, 5, or even 10 years but your finances are not looking as good
as your career.
You are probably one or two paychecks away from going broke.
You know this is a problem, but you don’t know how to fix it.
Have you ever wondered why you have been so successful in your career, but you seem to
be struggling with your finances?
The reason is simple.
Personal finance management is not taught in schools, and it isn't taught at home either.
Your school teachers were more concerned about doing their jobs and grading your papers.
Except in a few cases, your parents on their part encouraged you to be a good student and
also to become a responsible citizen.
The reason both parties never talked to you about financial management is that they didn't
know it.
Probably, they were also struggling with their finances and never had solutions to their
money problems.
Managing your personal finance can be a tricky task especially in the world that we are living
in.
If care is not taken, even the most prudent person could slip and find themselves in a
financial mess.
Do you know why?
It is easy to spend the money you earn.
Your bank accounts are linked to multiple services.
Placing an order or making a purchase could be as easy as a few clicks on your computer
or mobile phone.
If you want to make the most from the money that you earn, you must plan for it.
You must live in constant awareness of the money that is coming in and how it is going
out.
Without the right information, you may not know how to come out of the rat race most
people have found themselves in.
That is why we are looking at how you can be in total control of the money you earn
and the things you are spending your money on.
You can effectively account for your money only if you manage your finances properly.
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Let’s dive in.
What is personal financial management?
As a term, personal finance covers all aspects of managing your money as well as saving and
investing.
This includes budgeting, investments, banking, insurance, tax, mortgages, and retirement
plans.
Personal finance has to do with meeting your personal financial goals including short-term,
mid-term, and long-term goals.
Personal financial management has to do with your ability to know where you are financially
at the moment and what you can do to make the most out of your income in order to plan
for a better future.
This involves gaining control over your present financial situation so that you can organize
your daily expenses to match your plans and expectations for the future.
The reasons why money management is important 1.
Saving money The questions you need to answer are these:
What if you lose your paying job today?
How far can you go before you get another job?
Have you ever heard the expression "Saving for the rainy day"?
It is important to have some money kept aside that could save you from emergencies.
2.
Security for your family As you grow in life, your responsibilities
will grow to catch up with you.
You want to plan for your child’s college education.
You want to plan for your family's health through insurance and other solutions.
Planning for your family security is an essential part of money management.
3.
Investment opportunities No matter how much you earn today, your needs
will increase over time.
Managing your money effectively will prepare you for investment opportunities.
You will learn how to pick the right kind of investments.
Having the right kinds of investments will help you meet your growing needs in the future.
Without proper management, you may not have enough to meet your present needs.
And if you can’t meet your present needs, how are you going to have extra money to invest
for your future needs?
4.
Better Living Standard Are you happy with your present living standard?
I’m sure you would like yourself and your loved ones to enjoy a better living standard
in the future.
You want to own your own home, or at least a better one.
You want to go on vacation with your loved ones to distant places.
All this can only be accomplished if the money you earn today is properly managed.
5.
Increase in Financial Intelligence The good thing about financial planning is
that it exposes you to higher financial knowledge.
When you start saving and making plans for the future, you will need the services of
financial advisors.
As you plan and work closely with these experts, your financial intelligence will increase.
Make sure you build a relationship with financial advisors that you can trust.
Trusted advisors will be transparent and willing to share their knowledge with you.
Over time, you may find that you are beginning to take investment decisions on your own.
Now that you have seen the reasons why you must manage your finances, you also need to
learn the strategies that you can apply to get it right.
Strategies to effectively manage your money 1.
Budgeting It is easy to spend most of your money on
irrelevant purchases if you don't have a budget.
Making unnecessary purchases will affect your savings and leave you disappointed at the
end of each month.
You can get it right by making a proper budget.
Map out different areas you want to allocate your money.
As you allocate money for your daily expenses, also allocate money for your long-term goals
such as investments.
There are no rules of the thumb here.
You should identify a budgeting plan that is most suitable for you.
Several budgeting apps have been created for smartphone users.
You can as well use excel sheets.
Do a little research and identify the ones that suit your purpose the most.
A school of thought suggested a budgeting method known as 50/30/20.
A breakdown of this method goes like this: Assign 50% of your income after taxes to essential
living expenses such as rent, groceries, utilities, and transport.
Assign 30% to casual expenses such as wear, vacation, recreation, and charity (if you
like).
Assign 20% to future plans such as savings, investment, and retirement plans.
It doesn't matter how much you have had things messed up.
It is never too late to start.
You can start today by drawing a budget for yourself.
2.
The right bank accounts Operating the right bank accounts is necessary
to successfully manage your finances.
You can set up checking, saving, and investment accounts.
These accounts will become the pillars of your financial success.
Your checking account should hold the money you use for your regular purchases.
You should not leave your savings in a checking account.
Keep your savings in a separate account designed for that purpose.
If not, you could constantly interfere with your savings and squander it on unplanned
purchases.
Also, fund your investment accounts and be consistent with them.
3.
Emergency fund One thing about life is that unexpected expenses
show up from time to time.
What happens if you weren’t prepared for it?
No one prays for misfortune but as long as we live on planet Earth, situations beyond
our control will surface.
Set money aside for unexpected situations such as the loss of a job.
You should save up money in your emergency fund that should last you up to 6 months assuming
you lost your job.
Your emergency fund should also hold funds for situations such as medical bills, major
house repairs, or a huge car repair.
4.
Keep track of your finances daily You must check in with your finances daily.
This shouldn't take much of your time.
Dedicate 5-10 minutes of your time to it daily and you will be good.
Keep track of all your purchases and keep receipts.
Enter your spending into an excel sheet or the budgeting app you are using.
That way, you will know when you start spending above your budget.
5.
Clear up debts Debt could be a major hindrance when you start
working to achieve your financial goals.
Identify the recurrent debts that you have and start with the biggest ones.
If you have many accumulated debts, then you may have to set up a debt repayment plan.
Allocate a good chunk of your income to paying up these debts and aim at clearing them as
soon as possible.
You can take it up one after the other.
Start with the biggest ones, and then the next, until you have them all cleaned up.
When you are done paying off your outstanding debts, avoid getting into new debts.
Here are some tips that could help you clear up your debts faster.
• Set up a side hustle – If your current income cannot pay off your debts quickly,
you may consider starting a side hustle.
A side hustle will not only bring in extra cash that you need at the moment, but it will
also position you to reach your future financial goals faster.
You can go online and research available work-from-home jobs that you can do in your spare time.
You can start with freelance jobs, drop shipping, or affiliate marketing.
Who knows, your side hustle could grow to become a major source of income for you.
• Get a second job – A second job will be handy to help you clear up your debts.
This may require some sacrifices on your part, but you have to do whatever it will take to
come out of debt and become financially free.
• Sell off idle items in your home – If you look around your home, you could find
unused or unwanted items lying idle.
Put them up for sale on online marketplaces such as eBay.
There could be someone out there searching for that exact item and willing to pay for
it.
• Cut down your budget in some places – Go back to your budget.
Look through your listed items.
You may find some things you can do without.
Take them off from the list or at least cut down your budget for them.
That way, you could find extra cash to pay your debts faster.
6.
Be smart with your credit cards Credit cards have become an essential part
of our financial activities.
It seems unrealistic to not own one these days.
Credit cards provide convenience to us in paying for goods and services, but they can
also become major traps for debts.
Make sure you pay off your full balance every month.
If you can’t do that, then keep your credit utilization ratio at a minimum.
It means that you must strive to keep your account balances below 30% of your total available
credit.
7.
Examine your credit score Keep an eye on your credit card score.
Your credit score is a three-digit number, but it can make a great difference in your
finances.
If your credit card score is high, you will attract lower interest rates and better loan
terms from lending institutions.
A good credit card score will become useful when you apply for large loans such as a mortgage.
Getting a low interest rate on a mortgage could save you thousands of dollars.
Here are some ways you can improve your credit card score.
1.
Get your credit report and check for errors.
2.
Use a credit monitoring service to prevent future errors.
3.
Pay bills on time and keep your credit utilization rate low.
Late payment of bills is one of the fastest ways to ruin your credit score.
Well, that’s all for the video.
If you are interested in more interesting content.
Check out these two videos.
How businesses manage money Cashflow explained
It’s Not About How Much You Make, It’s About How Much You Keep Fundamental’s of
Money Management
Thank you guys so much for watching, have a great day and I’ll see you all in the
next one.