What is going to make this year different from the last year in your financial life? It is said the definition of madness is doing the same thing and expecting a different result. 1) Understand where you are: To get from point A to point B on a map, you need to know you were coming from point A in the first place. Awareness is the greatest agent for change. Financially this translates to being aware of what you have (Assets) and what you owe (Liabilities). This is also known as your personal balance sheet. It is the value of your savings or investments and the outstanding balances on your loans. The difference between the two is your net value or what you are worth financially. If you had to liquidate everything you have and pay off all your debts that is the amount of money that you would have. The more positive it is the more you are on your way to financial security meaning you can survive longer and longer without a source of income from a job. The balance sheet will show you what areas you will need to focus on this year. If you find yourself with a negative value it is indicator that you need to focus reducing your debts. If it is positive but you know it still does not give you long to survive on without another paycheck coming in, that’s an indicator that you still aggressively need to grow your investments. 2) Categorise your expenses: This is different from simply drawing up a budget. You can classify your expenses into the necessary items that you can’t live with such as food, rent, transport school fees, electricity etc. Then there are the other expenses such as entertainment, grooming, magazines, self care etc. This is most likely where you will be able to cut your expenses quickly. For example if you buy lunch at work for Kes 300 per day, that actually translates to Kes 6,000 per month. That is Kes 72,000 per year. That is the same amount of money that can go into reducing your debt, paying school fees, paying car insurance or even an annual holiday. If this same amount of money is saved consistently for 5 years in Treasury Bills it will accumulate to over Kes 500,000, which is a significant investment in itself. The choices you make with how you spend your money today will affect the quality of your life in the future. Once you have decided the amount that will be going into savings, debt reduction etc ensure that that the amount is automatically debited from your account when you get paid or a standing order to a savings account is set up. This will ensure you are left with no choice but to live within your means. 3) Learn more: Spend more time learning how money and investments work. If you consistently spent even 2 hours a week to research, evaluate your progress, attend talks/seminars, reading investment magazines, going to see properties etc, it will make a huge difference in your financial life by the end of the year. It is never about having the money to do it now but opening up yourself to ideas, new ways of doing thing, information and networks that will add significant digits to your balance sheet in the long term.
Waceke Nduati Omanga| waceke@centonomy.com