Someone suggested that I should write an article on managing finances and when I asked why, she said I have managed my finances well since she knew me. I didn’t think that was a good enough reason to write an article on financial management until I got a call from someone who said that he has saved some money with his partner and they will like to invest in the new year. When I asked how much, he said it was the equivalent of $1,300. My first reaction was to say no, because of the amount involved but I said to myself, if this person is concerned about investing such an amount of money, it must be important to him. I agreed to meet with him and his partner early next year to discuss but I made it clear that I am not an authorised financial adviser.
The general tips you get from financial books include:
- Use your credit card for the money you have to spend. This gives you free credit for as long as 45 days and improves your credit rating.
- Invest excess cash instead of spending on expense items that earn no income.
- Defer expenses where possible.
- Depending on your financial circumstances, there are various investment options such as savings account, fixed deposits, property investment, mutual funds. Other specialised areas include stock market and forex trading. Please consult an authorised financial adviser to assist you to decide your best option.
- The higher the risk, the higher the return.
There are so many speakers that claim to teach financial management but do not take into account the individual’s specific circumstances. When I started my working career, what I earned was not enough to pay for transportation, accommodation and feeding. Yet, experts teach us to put aside a certain percentage of our earnings as investments when we do not earn enough to survive. That was not going to happen in my case because I did not earn enough money to pay my bills and investment was the last thing on my mind. I know that the majority of the people are in the same situation.
Some of my financial principles include:
Principle number 1: Avoid loans at all cost except for investment purposes
When you decide to take a loan to invest, the cashflow should be enough to pay for a substantial part of the required monthly instalments. That is when you create wealth, otherwise you are working for financiers. I asked one of my former colleagues who migrated to one of the western countries when he intends to start working for himself and his response was after paying off his mortgage. When I asked when that will happen, he realised he will be working for an employer for the rest of his life. I stayed in a rented apartment and used some of my excess cash to build my own house. When I took a mortgage to buy a house, I paid it off within 5 years (not all of it was from the rent). The rent from the property has since paid for the cost of the house.
Principle 2: Never change your lifestyle because you got a promotion or salary increase
We all have the tendencies to live in bigger houses and drive flashy cars to match our current positions and egos. We tend to move our children to more expensive schools as a reflection of our new status even when those schools are not as good as the current ones they attend because we got promoted or got salary increase. Try to maintain a comfortable living standard irrespective of your position. To some, going on vacation is compulsory and people save towards it because neighbours or colleagues went on vacation with their friends and families and posted pictures on social media. I only started going on vacation with the family when I had extra savings and could afford it and not because I wanted to imitate anyone. Some people in financial difficulty go on holiday to exotic places because it has been planned or because they are not prepared to postpone it.
Principle number 3: Prioritise your spend
Because motivational speakers and financial experts teach us to allocate a certain percentage of our income to some expense categories, we comply even when they are unnecessary. We save for vacation for instance when that might not be a top priority. Instead of following these rules, I have my own rules of prioritisation. You have to prioritise your spend depending on your need and that should not include spending money on expenses that are not necessary. Instead of allocating your income to various expense categories as advised by motivational speakers, prioritise your spend.
Principle number 4: Give to get!
When you have excess cash, help others who are not as privileged. It is a well-known principle that the more you give, the more you get. That is after you have met your own essential needs. Little wonder why billionaires turn philanthropists? What you must avoid is to give when you are also in need of help. For us to have a peaceful world, we have to learn to give to those who need help as that is one of the ways we can all have peace.
This is a topic that can be the subject of a book. If you are struggling with managing your finances, please consult a financial expert or a coach!