Managing your money

Whether you earn a little or a lot, it’s always wise to budget and plan your finances smartly. Common mistakes that most people would make when it comes to money is getting too deep in debt, paying bills late, and not knowing how to save for the future. You can avoid making these mistakes by always keeping track of where your money goes and knowing what you can spend on.

Here are some steps that you can use for managing your money wisely:

Step 1: Set your financial goal
Financial goals reflect things you want to do with your money within a certain period of time. Setting these goals will help you understand the value of money and encourage prudent spending. Be sure to know how long you should plan for each goal.

Are they short, medium or long term goals? Which one of the following are your financial goals?

• buying a house
• buying a car
• starting a family
• child's education plan
• traveling
• medical and health insurance
• saving for retirement

Setting a series of personal goals will help you to manage your money wisely. Your goals may change from time to time, but they will serve as an encouragement and incentive for you to continue to budget and plan. You should plan for:
Short Term Goals
Things that can be done in the short term. Perhaps in a week, or a few months, but within a year such as buying new clothes or saving for a vacation.

Medium Term Goals
Things that can be accomplished within one to five years or more, such as buying a new car or a computer.

Long Term Goals
Things that you would hope to achieve at a much later period, in five to ten years such as buying a house, saving for your children higher education.

Allocation of savings for these goals depends on a number of factors. These goals will in turn determine your choice of investments. There is, therefore, a need to prioritise these goals.
The amount set aside for these goals varies from one individual to another and the factors taken into consideration include age, level of income, expenditure outlay, the number of dependents, job status and marital status.


Step 2 - Know where your money goes to
Many people do not know where they money goes to. After setting your goals, start developing a spending plan so that it’s easier to achieve your goals. Remember that your aim is not to cut your budget but to note the direction of your spending.

With this you will know:

• where and how you spend your money
  
• how much you owe monthly
• how much is left at the end of the month

Step 3 - Assess your spending habits
If you find that you have nothing left at the end of the month, it’s time to assess your spending habits. Look through your list of expenses and determine if they are a necessity or luxury item.

Look out for the following warning signals of bad spending habits that may lead to real money problems:

• You use your savings to pay current bills
• You take new loans to pay for old ones
• You owe more than you earn
• You buy on impulse even when you know you cannot afford it

Step 4 - Write down your spending plan
It is always wise to had some documentation that one can keep track with the record. A spending plan can help you manage your finances. You can also target areas where spending is out of control and also set a clear path for saving.

You can start making your own spending plan by using this simple guide:

• Establish your monthly total income
• Add up your total expenses including fixed monthly bills, loan repayments, rentals and daily living expenses, etc
• Put aside a fixed sum of money to meet emergencies or seasonal expenses (e.g. school fees, road tax, insurance renewals)

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