It’s not your salary that makes you rich, it’s your spending habits -Charles Jaffe.
In reality, being on top of your personal finances is kind of like being on top of your game in life. I know that there are a lot of people who think they are broke, struggling and sometimes that might be the case but sometimes it might be because your personal finances are spinning out of control, you don’t know what’s going where?
Having your bank and your finances in order is kind of like having a clean house. Based on personal experience there have been so many times when I just was not in control, often over-spending. Making a ton of tax mistakes that ended up causing an issue in the long term. If you’re thinking about getting on the property ladder — finances being in order is essential. If you’re thinking about investing — you’re going to need to have your finances in order. If you’re thinking about creating an emergency fund — you’re going to have to have your finances in order. If your thinking about travelling or enjoying a holiday — you need your personal finances in order. That doesn’t mean having a lot, it only means being smart with what you have. It is common knowledge that anything that is not managed will deteriorate.
1. Change in mindset The first step in implementation is having a change in mindset. Negativity or anxiety is often correlated with personal finances, a lot of individuals struggle with it. Personal finance is 80% behaviour and only 20% head knowledge. Often people don’t grow up with financial literacy. You are aware that there is something that can be done to improve and advance your finances but often struggles with what can possibly be done about it. A mindset shift when it comes to your personal finances and money is really important. The negative significance associated with money needs to be removed, such as — there isn’t enough, you’re not good at managing it, it’s too complicated to handle. Such a mindset holds you back from achieving positive results towards improving your personal finances. The best way to shift such a mindset is to fill it with reading books about money, positive stories about money. Otherwise, it would only limit your personal growth.
2. Set SMART Targets The next step is setting targets, SMART financial, realistic targets. Start small, working towards some sort of goal little by little rather than one large goal. It’s always more doable to instill habits. Everyone has different habits that they overspend on, such as online shopping or ordering excessive food, buying items off of sales or bulk buying products and later on not needing them. Any easy way of realistically setting and implementing a goal is by determining a goal, a figure per week based on what you currently spend. If your spending Rs.5000/ per month, think about reducing it to Rs.3000 or Rs.4000. If you set aside Rs. 1000/ month for savings, think about expanding it to Rs.2000–2500/ per month. Small changes that you can keep a note of in your mind. Rather than an ambiguous goal of just thinking, “I’m going to save Rs5000 this month”. When you evaluate your current spending and savings and break it down to weekly evaluation and then try making tiny changes of maybe even Rs.1000 The goal becomes more doable and trackable compared to a random ambiguous value determined at the spur of the moment. Trackable targets and numbers are more efficient, hence the importance of daily or weekly budgeting. There is various evidence to support that too many targets compared to one ore often not achievable. Nothing happens without focus. Don’t try to do everything at once. Take it one step at a time.
3. Determine the current financial position In order to know where you want to be in the future, or what you want to achieve, having a clear idea about your current financial position is essential. Everyone has been a victim of “ I’m earning enough, and only spending on bare necessities, yet I still am not able to save, where is all the money going?” The simplest solution is gaining clarity on what your current financial situation is and noting it down. Start by determining what your income is and what your essential expenses in terms of bills such as electricity, water and phone are? Often people don’t realize is that their expenses are greater than the income incoming. And the only straightforward solution to that is to either increase the sources of income, through passive income or a side hustle or cut down on spendings. Prioritizing the essential expenses compared to the non-essential ones! No one enjoys living on a budget. However, determining your essentials and necessities compared to your luxuries and desirables is a major step towards improving personal finances. Eventually, the benefits of budgeting are that it becomes a habit. Hence, once a habit is set, it no longer seems like a chore but rather a need and necessity, that only impacts your lifestyle in a positive manner.
Being financially secure is not about the amount you make but what you keep in your hand, in your savings, for your investment.
4. Future financial positioning — Automation Once an understanding of your current financial position is gained, the next step is future plan of the financial position you would like to achieve. The essential tip to staying a step ahead of the crowd is automating your process. Realistically, not everyone has the time or effort to think about the money all the time, sit and plan out a monthly budget every month, keep checking to see whether you are meeting your financial goals every-week! The process becomes annoying and obsolete. Hence automation is the way to sustain your actions in the long run. Automation means setting up automatic payments. It may be towards a savings account, or even towards a separate account. The main goal is to take your thought out from the financial work and set in place automatic functions that deal with these changes with you monitoring and checking up on it once in a while. There are various tools — financial apps, banking apps nowadays that allow such automation processes. However, saying this does not mean disregarding the plans and budgeting carried out previously. The automation process is only as strong as the budgeting and planning of current and future financial positions. The benefit of automation is cutting down the hassle of monotonous tasks that do not require continuous personal watch, but rather trusting your automation procedures.
It is impossible to be at your top game in personal finances without investment. One of the biggest hurdles that people often suffer from is investing. It feels overwhelming, uncertainty in what the first step should be in investing. However, that is a topic that I will divulge in another day, providing a beginners guide to investment.
Reading this article is already a beginning towards your first step in developing your mindset and growing your personal finances. Don’t stop now, share it with your friends, your family, educate them about what you have learned and start your journey towards financial freedom together. There’s no easier way to ensuring you stay on your goal than to share it along with someone. Support always makes the process easier and more doable compared to working towards it alone. It may be your partner, your family or even a friend. To gain more tips about improving your personal finances or starting your journey, visit www.nurtureinvestments.net