For one to enjoy a fulfilling life, one needs to plan every one of the six key pillars to life, namely health and wellbeing, religion or spirituality, friends, family and community, learning and knowledge, and finally financial security.
Being good with money means working towards or achieving financial security. Financial security is the ability to have enough money to cover your expenses and achieve your goals, while also providing one with peace of mind over the ability of their income to meet expenses.
Financial planning is the road that leads to financial security. So how can I tell that I am working towards financial security, where I am able to meet my life goals through proper management of my finances? Individuals are different in various aspect such as age, income level, future plans and lifestyle, just to mention a few, hence each plan is different.
However, here are 10 things to look at:
1. You invest before you spend: Your consumption every month should be equal to your income (net of all taxes) minus your monthly investments. Regular investment every month grows your wealth, so your money is making money for you. As with any investment, have a diversified portfolio, with a mix of growth investments in equities and alternatives, and income investments in fixed income solutions or structured products,
2. Stream of income: Being good with money means having a regular stream of income, either from your workplace or from your investments. Additionally, knowing how much you take home every month allows you to plan how much you’ll invest and how much you can consume,
3. Have a budget: Once you know how much you earn, minus how much you invest, what is left is for your consumption. Budget this consumption amount. Planning and tracking your expenditure for regular and unplanned costs is key to sustaining your lifestyle, and knowing how much you have each month to grow your wealth,
4. Treat yourself: Don’t accumulate for the sake of accumulation. It’s important to not be mean to yourself, and take that holiday without incurring any debt. Try to tie the treats to achieving a goal or a milestone, so that it’s not just because it’s a holiday season,
5. Resist peer pressure: As you treat yourself occasionally, resist the pressure to buy things you can’t afford or don’t need just because your peers are doing it. Financial security requires the emotional maturity to live within your means,
6. Consistently paying down your debt: Debt is not bad, especially if applied to investments such as an education or buying a house – that is good debt. Bad debts are those that don’t help you build assets, or those that are not part of your goals,
such as credit card spending on unnecessary luxury items, or incurring debt for present consumption. Avoid bad debts, and pay back debt consistently; you’ll have more money to invest and treat yourself,
7. Emergency money: As with everything in life, emergencies come up, whether it be health problems or family emergencies, among others. Financial planning involves having a fund stowed away for the financial surprises that life throws at you, with at least 3 to 6-months of monthly expenses in short-term investments, to avoid stress and having to borrow expensively last minute. Get appropriate insurance for such like sickness and death,
8. Retirement planning: A key financial goal is planning towards retirement, no matter what age you are. Start by considering the lifestyle you want when you retire, how much it will cost per month (even an estimate), add for any unplanned surprises, and work backwards towards investing every month to reach your goal,
9. Periodic financial health checkups: Financial planning is the journey towards financial security. Every journey needs a periodic checkup and assessment. Goals change as life progresses, and so does your situation in terms of income, health and family. Keep reviewing your financial plan to monitor your progress towards achieving your goals for a house, education, wedding and retirement. You may realize you need to invest more, or infact have more money set aside than is needed,
10. Continuous financial education, learning and research: All financial decisions should be based on research and learning. Financial education allows you to set realistic goals for yourself, with timelines that are achievable. Learning about financial planning makes you a more proactive investor, and research allows you to analyze multiple options to ensure you make the right financial decision. Don’t just buy land because your friends are buying. Work with a trusted and qualified financial advisor.