5 Tips to Building Better Financial Habits
Personal Financial Management at a very basic level means being able to have a clear understanding of your financial situation and manage it well enough so as you have enough to support your Current Expenditure, Save for the future and Invest.
Money dictates a lot of things in our life; from buying food, paying rent, paying transport, enjoying a drink, etc — we need money for almost everything. For this reason, we need to be very good managers of our money.
Here are 5 Tips to help you build better Financial Habits this year:
- Track
Tracking your expenses entails knowing exactly where your money goes.
You can start by reviewing your bank statements, Mpesa statements, your receipts; and accounting/journaling for items that you pay for in cash. Once you do this;
Make a list of all your expenses — detail them as much as possible.
Identify your fixed expenses, such as rent or a mortgage, car or loan payments, insurance premiums, etc.
Identify your variable expenses and divide them into must-haves (utilities, transportation, food, and clothes) and nice-to-haves (eating out, fancy phone, entertainment, travel, and gifts)
Keep track of your expenses — this way you get to know where you may be overspending.
Budget
A budget is an estimate of future income and expenses. It assists us not to spend more than we have.
Once you know have tracked what your expenses are, know what your income is and how much money you need, where, it becomes much easier to create your budget.
You can make your budget as high-level or detailed as you want, as long as it helps you reach your ultimate goal.
Some of the goals may be spending less than you earn, paying off your debts, padding your emergency fund, or saving for the future.
With a visual of how much you have and how much you need, you can cut back where necessary, usually variable expenses are a good place to start; if you are still falling short, you may have to manage fixed expenses.
Save
No one is too young to start saving, the sooner you start saving, the better off and happier you will be in your later or retirement years.
You can start by setting a saving target/goal — then work backwards and figure out approximately how many months or years you have to reach your target and how much money you should set aside per month to reach that goal.
In case you are not able to do this right away — aim to do it. Pay off debt and save or invest the freed up money.
Aim to save 10–15% for retirement or investments or whatever else you’d like to save for.
Supplement your Income
Getting a second job or a side hustle that can be necessary if you want to make fast or lasting changes to your situation.
Find an activity that can give you supplementary income, preferably, something you enjoy doing.
The good news is, the internet is flooded with side hustle ideas. Start slow, start small and soon you will find yourself supplementing your income while at the same time doing something that you absolutely enjoy and that does not feel like a chore.
Pay off Debts
Debt is a huge obstacle for many people when it comes to reaching their financial goals/objectives, hence eliminating debt is important.
We have both good debt and bad debt. Good debt is that which has the potential to increase your net worth, while bad debt is when you are borrowing money to purchase depreciating assets.
For example, in case you have several debts, a good debt elimination plan would be — while making minimum payments on all of your debt accounts, pay any extra money you have towards one debt at a time. After paying off one debt account, move all the money you were paying on the first debt to the next debt and continue from there, creating a debt paydown “snowball effect”.
Once you are totally out of debt, commit to staying out of debt, instead, save up an emergency fund to cover unexpected expenses, so you aren’t tempted to get into debt to cover them.
Before we conclude, there are several tried and tested ways we can become better at building healthy and sustainable financial habits. The journey however begins with YOU and how much you are dedicated to changing the course of your Financial Life(style).
You can read more here: https://bit.ly/3B36RzX
Share this with a friend!. Thank you for reading, X.
