Many individuals find issues of personal finance a matter for rich people who have the money to spare. But the path to financial freedom is one that all rich people have followed from their own poverty. Those who master the laws and habits of personal finance progress financially while those who keep wondering how they can get rich quick get stuck in the rat race. Here is a simple guide of how you can manage your finances from your current situation to where you want to be financially.
Many individuals find issues of personal finance a matter for rich people who have the money to spare. But the path to financial freedom is one that all rich people have followed from their own poverty.
Those who master the laws and habits of personal finance progress financially while those who keep wondering how they can get rich quick get stuck in the rat race. Here is a simple guide of how you can manage your finances from your current situation to where you want to be financially.
1. List your total assets and total liabilities at one point in time e.g. Now
2. Calculate your total worth by finding the difference between your assets and your liabilities. You can easily achieve this with the help of an Excel worksheet or a simple manually done one.
3. If you owe more than you have, draw a plan for paying off all your debts without borrowing more by reducing your expenses and increasing your income per month/period. If you have more than you owe, good, start saving the difference.
4. You can reduce your expenses by taking note of all your monthly expenses and removing all the unnecessary costs you incur and channeling the difference in your new budget to your debt repayment.
Some institutions like B Blue Financial services offer debt consolidation loans which you can use to pay off all your debts and repay the loan in installments.
5. After paying all your debts learn to pay yourself first after every monthly income by taking off fixed amount to put it in an emergency funds account. A KCB Simba Savings Account is convenient.
It earns interest for only four withdrawals a year hence discourages you to withdraw all the time, but in case of emergencies you can still withdraw more than four times but forfeit the interest given.
6. Build your emergency funds account up to a salary of three to six months. At first it sounds impossible but little by little, it becomes real, as long as you have the courage to start.
This funds will be used for unexpected emergency like job loss, accident, emergency car repair, house moving etc. learn to replenish your emergency account to original levels every time you dip into it.
7. Set your short-term, medium term and long term financial goals, e.g. paying off your debts, investing in the stock market or building your retirement home respectively.
8. After the emergency account start putting your savings into a savings account that will be towards set financial goals. Start small but aim big
9. If your savings accounts grows substantially consider moving your saving to liquid investments like money market funds or stocks.
The aim to put money where it can grow but be able to turn it into liquid cash when you need it.
10.As your savings grow consider investing in long-term instruments like real estate and treasury bonds where you are financially independent enough to cover all your day to day needs and leave your money locked up in an investment but achieving a good growth rate.
11.Always reward yourself reasonably after accomplishing each financial goal but follow it up with a greater financial goal. Learn to review your goals periodically as soon as you achieve those you have set with new financial realities
Personal finance is a variation of these simple principles I have indicated here. Personal finance is not for accountants or managers but for everybody.
Resources and guides on how to achieve financial freedom are just a click away. All one has to do is make a decision to change their financial station, take the courage and patience to read and understand, and establish the necessary personal hunger to get yourself where you want to be.