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If we do not start doing something about our finances now, we will not start when we get our January salary or the client pays. Neither will we start in February nor April nor July. As per my articles in the past month emphasised, action is everything. Many are still working on New Year resolutions and life has gone back to normal. We are back at work, kids are in school and it is very easy to go back to the same routine if we do not do something different. Here are a few practical tips to get us moving in a different direction.
- Clean out your Financial Closet. This is the time to do a little financial spring-cleaning. I cannot seem to work on an untidy desk. My mind is all over the place when I try to so I regularly have to make a point of cleaning up just to be able to work. I also learned that wealth cannot be created in disorder. Do you have your financial affairs all over the place? You may have some accounts still open that you don’t use. You may not even be aware of the exact amount of money you have after the holiday festivities even inside the accounts you use. Well this is the time to find out. You may have an insurance policy but do not know exactly where it is. Some shares you bought during an IPO and you are not sure exactly who the stockbroker was. You may not know exactly how much money you owe. The first step is to go and get re-acquainted with what your financial situation actually looks like. Collect all your necessary documentation and this will give you a clear picture on where you stand.
- Create a Spending Plan. People tend not to like the word Budget. The feedback I have received indicates that people find it very restrictive. So I prefer to refer to it as a Spending Plan these days. List out all your monthly expenses. List both the item and the amount of money you are spending or intend to spend. This is a plan of what you intend to do with your money as it comes in. It will also provide a guideline or boundaries of how much should be spent and where. Compare your total anticipated expenses with your income. If there is a deficit it obviously means you are spending more than you earn and you need to rectify that. Alternatively you need to create more income. What you cannot do is wish the problem away and continue spending with no plan. Many business owners are under the illusion that they cannot budget because of irregular income. This is not true and is in fact a reason why this exercise is more important. Once you are aware of what you need, you then know how to plan, stretch and structure your business so it can generate that income. Depending on the nature of your business, you will also be able to put money aside for future months when you get larger amounts of money rather than spending it all.
- Start putting aside money for irregular expenses. These are expenses that may not occur every month but will happen during the course of the year. If you had not already planned you may already be feeling the crunch of these expenses such as school fees, insurance etc. If you do not do anything about school fees for next term now, you will feel as much pain as you are feeling now when it falls due. The trick is to treat them as monthly expenses and move the money from your regular account every month or as and when you get money. So for example, the amount you need in school fees for the rest of the year should be broken down into a monthly amount and kept separately for that purpose. The same goes for insurance, medical expenses, holidays and any other expense that you anticipate will occur on an irregular basis.
- Save before you Spend. You will never be able to save if the money stays in your usual transactional account. You cannot wait to only save if money is sitting in your account at the end of the month. This is like waiting to see how long you car can run on empty before you out fuel. The car will stall. Your savings plan will come to a complete halt, if you do not save before you spend. Many people have decided to save more this year or start saving. It’s a nice thing to say and harder to do. Making this work from the get go is all about removing money from your account immediately you get paid or whenever money comes in. Then you know the rest of the money in the account is allocated to your expenses. In the bigger financial scheme of things it doesn’t really matter if you spent two thousand shillings less on household shopping and the same amount more on entertainment. However it will make a difference if you saved or invested two thousand shillings less on a monthly basis.
- Become a Student. “The illiterate of the world will not be those who cannot read and write. It will be those who cannot learn and unlearn” (Alvin Toffler). Accept as you move forward in this journey that what worked last year may not work this year. And what works this year may not work next year. I don’t think this only applies with money. It applies to every sphere of life i.e. your career, relationships etc. Your financial plan can never be static. You must be able to adapt to new information and opportunities. The wealthiest people I know have excelled at being students of life. Try and learn something new every month. It could be shares, property, business etc. It does not matter if you cannot afford to invest in it. As long as you feel you have an interest in it, try and learn. Get a notebook and record your research. The end of this year may be very different for you if you do.
Waceke runs a program on personal financial management. Find her at waceke@centonomy.com|
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