Are You in Control of Your Personal Finance?
A famous saying goes, “A fool and his money are soon parted”. It means that an imprudent person spends money without a plan and on inconsequential things and ends up with nothing not long after acquiring or receiving the money. Are you a fool? Are you at risk of becoming one in the near future?
If you want to escape this trap and the attached label, then you need to understand personal finance. It refers to a procedure for planning for and managing your money efficiently. Personal finance encompasses how you generate income and how you spend it, including decisions on saving and investing.
When the Unexpected Happens
It is about having clear financial goals and aligning them with your expenditure. Personal finance also implies that you are keeping your debt under control, if you have any. In essence, it is a whole body of knowledge to ensure that you not only generate income but you also enjoy your money in the long term.
If you are not yet convinced of the need to have a good personal finance plan, think about a number of scenarios. If you lost your job today, how comfortable would you be before you got the next job? If you got sick and lost your job, how would life be for yourself and your family?
Eyeing a Comfortable Retirement?
Do you recall how the Covid-19 pandemic disrupted life? Many people lost their jobs, business and means of livelihood. Some had to relocate to areas where life was cheaper. People’s lives underwent complete change. This is especially true of people who had not back-up plans in place.
One of the strategies for mitigating economic meltdowns at personal and familial levels is to put your financial plans in order. It makes no sense to work so hard yet fail to enjoy your earnings into retirement. You also need to ensure your family lives comfortably when you are no longer on earth.
Here are aspects of personal finance you need to address:
Earn
You cannot plan for and spend what you do not have. Find a way to earn money. Find a job commensurate with your academic qualification or start with the available one. If you cannot find a fulltime job, work part-time. A side hustle is also an effective way of making an extra coin.
Another effective way to make money is to be self-employed. This entails starting a business in line with your profession. For example, if you are a trained computer specialist, you can start a cyber-café. If you offer exemplary service and/ or products, you will generate income consistently.
In addition, you can become an entrepreneur by expanding your business and employing many people to assist you. Here you will need to create a system that earns you passive income through your employees’ efforts hence freeing you to work on conceptual and strategic issues.
Further, invest in company shares and the dividends you ear will create a good income stream. Whichever way, ensure you have an income because that is where personal finance begins.
Spend
Now that you have earned the money, you have earned the right to spend it, but in the right way. We spend when we purchase consumable goods and services using cash (including mobile money) or credit cards. The former is when you use what you own while the latter is when you borrow to spend, which means you are spending beyond your means.
Most of the money we earn is spent on food and other household needs, rent, travel, entertainment, repaying loans and credit card debts and paying taxes. The more the expenses, the less the residual income for other needs. If your expenses exceed your income, you are in the red.
Consequently, you need to watch your expenditure the same way your struggle to earn. Never allow you spending to outgrow your income. Prioritize your expenditure. Forego that which is not necessary, at least for the moment. Do not spend everything you earn, as this will compromise your personal finance plan.
Save
If you succeed in controlling your expenditure and retain some cash, you are ready for this next step: saving. Managing this third aspect of personal finance is also critical if you are to live a productive and fulfilling life.
Saving comes in the form of cash in your possession, money in your mobile wallet or bank account. Savings are important because they help cater for emergencies and unforeseen expenditure.
However, do not keep too much money in form of saving because life has a way of creating gaps for money to be spent. Moreover, savings do not earn any interest. For example, savings in the bank actually incur bank charges, which means it loses value.
Invest
Wait a minute; your money should not have been exhausted at the saving phase. You need to invest part of your income. This is likely to be your most important money decision if you do it prudently.
Investing entails buying assets, which will generate income for you albeit gradually, and hopefully become a sizeable amount of money. That said, investing is subject to risk. It is possible for all or most of your investment to bring you high returns. Hence, you need to conduct thorough research before investing.
Common investment options include mutual funds, company shares, bonds, commodities, mutual funds and stocks. Before investing, seek professional assistance to minimize the risk of loss.
Personal Finance is not Optional
There you have it. For a comfortable life now and in retirement, you need a personal finance plan. To ensure you family does not suffer when you are no longer able to work, mange your money well. Earn, spend wisely, save and invest if you care about yourself and your loved ones.
