One of the best ways to ensure that your life is smooth is by sorting out your finances. I am a living testimony to this. Before the start of last year, my finances were a mess. I was repeatedly in debt and I couldn’t meet my most basic needs. Whilst secured loans can be handy, over reliance on borrowing money is not advisable.
I decided that my life needed to change and I started with my finances. In this post, I will share with you actionable tips that helped me turn around my financial situation. These tips are applicable to those in employment as well as those in business.
You will not get ahead without budgeting your expenses. One of the pitfalls that most of us fall into is the idea that you can spend your money without budgeting for it. What results from this many times is shortage or wastage.
I was prone to wasting or overspending my income whenever I failed to budget. It is only when I took a proactive step to start budgeting that I saw changes occur. To make a budget, you don’t need to do much. Simply list down your income and then proceed to list down the things or bills you would like to pay for. Calculate the total expenses and deduct the same from your income. If going shopping, carry a shopping list with you as it will help you guard against impulse buying.
Savings are one of the surest ways to create future security for yourself. A savings plan is a general strategy on how much money you will put aside, how, and where you will put it.
Before I started saving, I read a lot about what percentage of income one needs to save and where you can put the money. All that seemed valid but not quite relatable to the situation I was in. When it comes to savings, I realized it is important to first figure out where you’re at that moment. Know your total income and the expenses you are dealing with.
After I calculated all that, I found out that I could save 10% of my income monthly and still lead a comfortable life. To ensure I followed this dutifully, I opened a savings account with my bank and negotiated a check-off system that meant I received only 90% of my income monthly. Two years down the line and this is the best decision I ever made.
An emergency fund is money you put aside towards meeting unforeseen expenditure. Unlike savings, emergency funds are not for investing. From my experience learning about personal finances and how to manage them properly, the ideal emergency fund equals six months of your income. This is enough to cushion you against any loss of income for that period.
You will need a significant amount of time to build up your emergency fund. The best thing, however, is that you can start immediately, start small and build it up. Putting aside 5% of your total income monthly in addition to any spare cash you save on your expenditure will see you grow your emergency fund steadily.
4. Practice Good Debt Management
Good debt management is one of the pillars of a sound financial life. It is important that if you’re already in debt, you make an actionable plan on how to start repaying. Make these payments part of your expenditure and dedicate a portion of your income towards clearing the loan in question. Moreover, it is wise to consider all other future commitments into debt situations and find ways to ensure you do not get into bad debt.
Financial independence is a goal that we can all achieve if we put our minds to it. It starts with knowing what you earn and devising ways of retaining as much of it as you can.
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