Financial Education

How to Successfully Manage Your Personal Finances

If you find yourself falling short in planning for your financial future, then it may be time for you to consider having a plan to better manage your finances. While there is no magic formula, there are simple steps you can take to gain control of your finances and secure your future.

1. Lay out your long-term Financial Goals

Start by considering what you’d like your financial situation to look like in the long term. How much savings would you like to have? Do you want to have other forms of investments, such as properties and other income-generating investments? Ideally, you will want to have some diversity in your financial portfolio.

You will also want to consider your finance obligations. How much of your credit card financing would you like to have settled, and by when? When you’re planning your long-term financial goals, you also want to consider other important investments, such as investments in your children’s education, and lifestyle investments such as leisure and travel with your loved ones.

Next, you want to prioritize these. This does not mean that the goal that is bottom on the list is the least important, but it may be the one that you are more flexible with in terms of timing. For example, you can’t change the fact that your eldest daughter will be going to university within 5 years, but you can postpone your retirement a couple of years.

2. Create annual and monthly budgets

For each of these goals, set out your milestones through annual and then monthly budgets. You should do these in tiers. The first tier will represent the budgets for your financial goals, which you have created in the first step. You will want to determine how much you must set aside each year, and then each month, to achieve those long-term financial goals. That will be your tier 1 budget. It’s tier 1 because you must always pay yourself first! Your future self will thank you.

The second tier will represent your immediate commitments. This tier should include your monthly obligations (such as your auto finance installment and any other monthly installments), your monthly expenses (such as your rent or mortgage installments, utilities, and telephone bills), and any other monthly commitments that you may have (such as family support). This tier should also include your short-term savings plan (i.e. an emergency fund for a rainy day!) and your monthly groceries. All these together will sum up your tier 2 budget.

The third tier will represent your current lifestyle expenditures. How much would you like to spend on dining, shopping, leisure, etc. This will be your tier 3 budget.

3. Sum it all up

Summing up all tiers will give you a number that you can either realistically meet or not, based on your current income level. This exercise is intended to help you figure out where your money is going and how to better manage your finances. It is the tool that will give you most control over your financial future.

4. Amend and Re-prioritize

Based on the above, you will want to commit to your 3 tiers (if it can be done) or amend and re-prioritize, if it is unrealistic. The key here is compromise and not sacrifice. What can you compromise on today to help you manage and secure your financial future? As much as possible, consider making alterations to Tiers 2 & 3 before Tier 1. Perhaps going out 1-2 times a week instead of 3-4 times a week is a reasonable option. Or buying your groceries from a more cost-saving supermarket. Or searching for better plans for your monthly telephone bills. You may even find that your home is unnecessarily large for your family and downsizing is a logical compromise, especially given that such a downsize may help reduce several other related bills.

In this step, you may also find that switching from renting to owning property could help you in achieving some of your long-term financial goals.

5. Track

The best way to stay on budget is to track your spending. This option has become significantly easier with digital banking. The less cash you use, the more you are able to review your account statements to track your spending habits and identify where there might be unnecessary leakages. In this step, it is also important to check your finances on a daily basis. Small costs can add up over time and you may suddenly realize how a seemingly small and unimportant expense actually adds up to in a given year. This step also helps you in assessing your wants versus your needs and re-prioritizing accordingly.

This Card is invite only, Please register your interest