We started out last week by stating the need to define your financial goal. Not a bad place to start for a column that’s going to be all about personal finance. However, before we go any further, I think we need to understand what personal finance is and why it is important.
As the name suggests, personal finance refers to managing your money, which encompasses saving, investing, budgeting, planning, etc. Understanding the need for personal financial planning helps you to live a financially secure life without running out of funds or into debt.
Your income is the first port of call in personal finance. It is all the money you bring in, which includes salaries, wages, dividends, and other sources of cash.
Expenditure is an outflow of cash and typically where the bulk of the income goes. This has to do with whatever an individual uses their income to buy or pay for. This includes rent, groceries, eating out, home repairs, travels, entertainment, etc.
Being able to manage spending is a critical aspect of personal finance. Individuals must ensure their spending is less than their income, otherwise they will fall into debt.
That is why budgeting is a vital part of personal finance as it helps you to keep track of your spending patterns each month. Start by calculating your total monthly income and then track all of your expenses for the month. This will help you to know where your money is going, where you can save more, and where you can spend little each month.
The best step in any good financial life should be knowing where your money is, and spending less than you make. While we almost all aspire on some level to a lifestyle of the rich and famous, very few get there, and even those who get there may not stay there as a result of poor financial planning. The savings created from good planning can prove beneficial in difficult times.
So, before committing to a significant expenditure, estimate how much income is likely to be available to you. If attending a burial, wedding, naming ceremony, or marriage anniversary will eat into your savings, avoid them till the right time. Truth be told, you will be called names; accept the name-calling but understand one thing – that these same people will call you worse names if you have to borrow from them to feed or meet your basic needs.
Endeavour to stay within you means, stay within what you can afford. Cut your cloth according to your material, not your size. It is best to continue to live and make purchase in a way that will keep you as financially free as possible and in complete control of your finances.
Whether you’re in your 20’s still trying to figure out this thing called life, or just starting to learn about personal finance, in your 30’s and looking to better manage your funds, or in your 50’s and looking forward to your retirement age, one thing is certain, you should be saving for the future. It is important to set up an emergency saving fund to cover any financial hardship that may arise in the future. For instance, you can make sure there is enough insurance coverage to replace any lost income in case the family’s breadwinner becomes unable to work or passes away.
And here’s something parents should take note of. A South African pension and insurance expert looking at the demographic trend in Nigeria stated that the new generation of children have taken to western lifestyle and would gradually think less of the extended family pattern of living.
“It is common to find these days family sizes pruning down to three and four, unlike what existed in the past and that suggests that people want to keep smaller homes, so the tendency that they will have a luxury to begin to look after aged parents in the future is declined,” the expert said.
The implication of this, the expert said, is that people should now begin to think of how to provide for their future and retirement, rather than want to depend on their children who may have chosen to live the city way of life, or who may still be struggling to find their feet. This reality demands that people begin to get knowledgeable on how to provide for their future through pension plans, such that dependence on children and relatives for support would be less if it must be.
Bottom line: Personal finance is necessary for everyone – the young as well as the old. It provides you with the understanding of how a decision you make today affects your tomorrow. It is about making smart choices that lead to financial stability. Wherever you find yourself in life, make sure you are growing in the aspect of your finance because it is a habit that can literally save your life. No matter how much or how little you earn, a portion of it should be kept as savings. E get why.
