Managing Finances 101

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You might have a few financial goals set up for the years ahead to assist you in getting to where you wish to be in life. Financial planning is the process by which you identify, prioritize and plan to achieve these financial goals by managing your money wisely.

When put into practice, this steps can have a big impact not only on your budget but on your overall financial future.

The first step to take on managing your finances is creating a budget and sticking to it. This might sound simple, but you’ll be surprised how only a few get to do it. Think of your budget as your guide to reaching your financial and personal goals. If you are having trouble covering all your expenses each month, a budget can help you redistribute your financial resources to avoid overspending, that’s because a budget will help you see and understand where exactly your money is going and whether or not you are in alignment to achieve your goals.

In an overview, we shall give financial management the approach below

  1. Create a budget
  2. Set savings goal
  3. Tackle your debts
  4. Invest

As a prerequisite to this exercise, you need to have your goals set. It begins with you thinking of what your goals are, i.e. saving for education, buying a new house, saving for retirement

Goals can further be sub classified into short, medium and long term. Set a target date and a priority level for each, understand and calculate the financial cost of achieving these goals.

Now that you have identified and prioritized your goals, let us start building your financial plan to fulfill the goals you already listed.

Begin by organizing your financial records, file and categorize your records, identify all your income and expenses, savings and any investments that you have already made.

Note down your income and expenses on a monthly basis in separate columns, this should help you track your monthly and annual income and expenditure as well as give you an opportunity to identify items you can knock off the budget or reduce those with high expenses. Figure out which monthly expenses are unnecessary or can be reduced. The main purpose of this whole exercise is to ensure expenditure is contained below the income realized, creating a situation of extra income realized through managing expenditure, which should be redirected towards planning for your goals.

Is the money realized above enough to get you to your financial goals? If yes, in how many months or years? Will the changes in your income match those goals as you come close to reaching them? Would you be able to cope with any emergency expenses? Looking ahead, will help you plan and invest better?

After you find answers to the questions above, set focus to manage the savings realized and seek ways to maximize on the amounts realized.

Next step is setting saving goals, with your budget in place building a saving will be much easier as you know how much extra you have each month to channel towards your goals.

One of the best savings goals to start with is building up an emergency fund to help cover unexpected expenses like medical bills, major home or car repair, or car tire

Start by building a 3 months expenses as a goal, once you have established an emergency fund and are living within your budget you can then figure out some long term savings goal.

Third is to tackle any debts you have; as you are working to pay them down, you probably want to stop adding to the debt you already have, the less debt you have the easier it will be to get out of it. It could also be helpful to know how much your debt is costing you in terms of interest. That is because it is an escalating cost and will continue adding on weight on your finances. Remember one of the main objectives is to remain lean on expenditure so as to grow that financial muscle and stamina you require.

Conduct your research, gather all the details of your financial status and study the various investment options that are available.

Consider discussing your investment plan and goal with a professional investment advisor. His professional advice will be valuable in sharpening your strategy as well as give you the reassurance you are on the right path.

Stick to your financial plan, once you have started your investing journey, stay disciplined and keep track of the plan including your budget,  saving and investments.

Stay flexible; while sticking to the plan is important, it is also necessary to be flexible towards changing factors like the market trends, income changes and new opportunities available for investing.

Rethink your goals, once you have your cash flow for the coming months figured out, realign your goals considering your priorities as well as factors such as inflation which will make realizing these goals much more expensive in the future.

This intelligent maneuvering can make a big difference in your future as you acquire skills to stay afloat your finances, if your current financial plan doesn’t feel viable due to new life events or changes in your goals, alter it to be more realistic.

You may consult your investment advisor from time to time to see if there are any changes necessary. Implement your financial plan at its earliest. Don’t forget to track your progress on an ongoing basis, make sure you review your financial plan regularly with your investment advisor.

 

More tips

Avoid debts, unless it’s going to investment (good dept).

Avoid credit cards if you lack discipline.

Having a loan on a depreciating asset is as well not advisable

If you do not save, you do not have the seed of success in you.

The more money you save the more you have at your disposal to invest.

Do not borrow on credit card, go into bank overdrafts- Only spend what you have

Pay off your bills first.

Do not spend money on things you do not need

Check your bank statements and identify areas of expenditure or overcharges

There are a lot of business opportunities out there, this takes attitude to discover, business ideas lie where the problems are, learn to identify opportunities out of these.

Sub classify your investments into short term and Long term.

To keep track of your finances you can take advantage of free android book keeping applications

 

 

Frank

Frank Odhiambo

Mind Grid Perspectives

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4 thoughts on “Managing Finances 101

  1. Odhiambo there is a simple touch in your writing that grasps someones quest to read the next,
    Il share with you a seed of success il have acquired by end of December, bravo mr !

    Liked by 1 person

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