At the turn of each year, we all have our dreams and we possess new energy levels to achieve them. This individual expectation is like a cycle. Everybody wants to succeed, at least in their minds, but not everybody will. Below is a list of 20 actions you should take if you want to improve your personal finance this year.
1. REVIEW THE PAST YEAR
The first thing you should do is to analyze the past year. Research has shown that of the lots that make ‘new financial resolutions’ every year, less than 10 per cent actually get to follow those resolutions through the year. Doesn’t it bother you that at the beginning of last year, you also made resolutions that you failed at? Why turn around in cycles every year? Take a pen and paper, sit down and review your financial activities for the past year; from your income earnings to spending. Break everything down into tiny bits and you will have a clearer picture of why some of your financial desires didn’t come to pass. It could be that your total expenditure outweighs your income.
Simple Guide: Create a ledger of credit and debit. Every rupee of your income, no matter how little, should come to the credit side while expenditures come to the debit. Sum each side up. If your debit is over 30 per cent of your credit, do you still wonder why that financial dream of yours was out of reach in the past year?
2. CREATE A CHECKLIST OF ALL YOUR FINANCIAL MATTERS
The second step is to create a checklist of all your financial matters, while including ‘Emergency’ as the first in the checklist. This is because emergency situations will always arise any time and can dent your plans, if you are not adequately prepared. The best way to create this checklist is to break each financial matter down into months. Many people go through the year with false belief that they have everything sorted out in their heads. The more reason they fail because human beings are susceptible to memory loss. Sort them out in black and white instead, and a new level of motivation will come on you each time you look at the checklist
3. SET SPECIFIC FINANCIAL GOALS
After creating the checklist, the next step is to set your financial goals complete with specific dates. That is only when your wishes become goals since the dates act as deadlines thereby putting you on delightful pressure to beat them. Any goal without a specific date of achievement is not a goal. You are merely wishing. Sadly, this is what many people do. By specific, I don’t mean you saying you will make a million in August 2020. Be more specific with date. Rather, say August 30, 2020, for instance. Then it becomes a goal that you can wake up every morning and chase around.
4. SPEND WHAT IS LEFT AFTER YOU HAVE SAVED
Learn to live by this rule today. For every dime you earn, save at least 10 per cent of it. Now, this is the difficult part: many people aren’t disciplined enough to do this. The key to achieving this is to separate your business income from your personal finance.
5. LEVERAGE ON GOOD DEBTS AND AVOID BAD DEBTS
Everybody should like debt. This is a principle of the wealthiest people in the world. They like good debt and avoid bad debt. Good debt brings you more cash flow and if well managed, sets you towards financial freedom. Bad debt on the other hand, brings you unneeded luxuries, put serious pressure on you and can make you miserable. If you must boost your personal finance in 2020, try to avoid bad debts.
Good debts are incurred towards fulfilling rewarding financial obligations like the purchase of businesses or real estate; these are things that will compound your financial interests over time and make you independent. Bad debts are taken out to buy non-essential luxuries such as cars, holiday trips and best gadgets. These luxuries don’t compound wealth. Rather, they take what you already have. Decide which one you want.
6. PAY OFF YOUR SMALLER DEBTS FIRST
By now, you must be saying but I am in debt already. My debtors are breathing down my neck. All well and good. Make it a point of focus to liquidate your bad debts. Start by making a list of your bad debts in order of their sizes. Then settle the smaller debts first. Any debt that is fully settled should be cancelled out before moving to the next.
The logic behind this is simple. The smaller the debt, the easier it is to pay off. With each debt cancelled out, the more confident you will become of liquidating the bigger ones. This confidence brings with it desire not to keep going through the show of cancelling out debts every year. In other words, you’ll become a better manager of your finances.
7. LIVE YOUR MEANS
This must be a strange one. I have heard many people advocating that people should live below their means in order to have reasonable savings. Well, I actually believe people should live their means. If you can afford to conveniently buy out a business, why not? The key to living your means is convenience. In measuring your convenience level at taking on situations, you must be truthful to self about your financial situation. You might be on a one lakh per month salary and feel you can live in a three bedroom apartment in Mumbai. You should calculated the other supervening expenses like monthly feeding, clothing, welfare and transportation to know how much you are left with to contribute towards the means you want to live.
A simple rule I advocate is this: if a personal financial project is more than 10 per cent of your actual income, then you might be better off living below your means.
8. OPERATE 2 DESIGNATED BANK ACCOUNTS
I am advocating this because most times, we tend to draw from a single bank account to solve our personal financial challenges. The danger in this is that such practice is an enemy of financial planning and often runs people dry. If you are serious about securing your financial future, then have two bank accounts where you save at different times. The first should be for savings and this could be your salary account.
The second is for emergency. Since you’re working on a budget, you know which account to go to on each occasion and discipline will stop you from touching the other accounts when you have no need to.
9. DIVERSIFY YOUR INVESTMENT HOLDING
Diversifying will help you to minimize your investment risks. Smart working entails you have your risks spread in different sectors. If your investments in a equity fail, your investments in other areas will help mitigate the effect of your loss. There are many reasons why you should diversify: loss of business, inflation, taxation, government policies and political instability are a few of the reasons why you should never remain in a single sector as an investor.
10. CREATE PASSIVE INCOME
This is a key to financial freedom. To build passive wealth, you must be involved in activities or buying assets that generate you more income. To boost your personal finance this year, start engaging in activities that will generate you income even when you are not seriously working. Leverage on technology and get involved in online businesses, get involved in genuine network marketing programs, invest in viable businesses and watch your income compound.
11. LEARN THE RULES OF INVESTING
That you want to diversify and create passive income does not mean you should not follow the rules of investing. The first rule of investing is that you should never invest in what you don’t understand. Get adequate knowledge before plunging your hard-earned money. The second rule is that you should never invest money you can’t afford to lose. Investment can be a risky venture, so have liquid cash you can fall back to if the investment fails. There are other rules you should learn such as the principle of compound interest, legal framework of what you are investing in, and so on.
12. ENGAGE IN YOUR PASSION AND HAVE FUN
Some people are miserable because they are not doing what they love. Some are stuck in jobs they hate just for the salary. To do great things in life, you must be passionate and enthusiastic about what you do. I love providing business and financial solutions to people who need them. It gives me joy.
Learn to be passionate about what you do. That is when you can have fun and enjoy life to the fullest. Not loving what you do can drive you to make poor financial choices. If you hate what you are presently doing, here is a tip: give yourself sufficient time to properly invest in what you are passionate about. Then move on.
13. EXERCISE TO KEEP YOUR MIND AND BODY IN SHAPE
Many people work few hours and they are fagged out since they don’t perform any kind of exercise. Engaging in physical exercise keeps your mind at alert and your body in great shape to take on any physical activities.
14. TAKE YOUR HEALTH VERY IMPORTANT
All your goals in life will go as far as your health permits. Your health is your number one wealth; therefore you shouldn’t be careless with your health. I have seen people who are careless about what and how they eat and drink, and are clumsy.
15. BE FLEXIBLE AND ALWAYS ADJUST
We all want to appear to be in charge, that we have planned ahead and are ready to take hold of our financial situations. However, changes will occur along the way, some of them beyond our control. The people who take biggest control of their personal finances are people who adjust to favorable evolving trends. They are spontaneous in their approach towards life. The danger of being rigid is that you are not open to new ideas and opportunities. You are stuck with your viewpoint, with your personal understanding of doing things which may be what is limiting you. This is how personal finances compound. There are times when you follow your conviction, but make sure you have taken every necessary factor into consideration.
16. WORK SMART
Have you noticed that while you are stuck in your 10-6 job for a few thousands every month, another person works few hours and earns far higher than you? The rule of the 21st century is working smart. While I loathe laziness and can’t encourage it, yet your hard work should be embedded in working smart. Think of disruptive ways you can engage the public that will generate you more income. Do you have large following on social media? You should leverage on that and promote your passion. Take advantage of technology and start with what you have.
17. LEVERAGE ON TECHNOLOGY AND AUTOMATE SAVINGS
This is the age of technology and everything is going digital. You can’t afford to keep living an analogue lifestyle. Get accustomed with the various available technologies that can help boost your personal finance this year. It is useless, for instance, to be carrying cash around when you can easily perform banking transactions on your mobile phone. You can automate your savings and spending so that you don’t exceed your budget.
18. HAVE A RETIREMENT PLAN IN PLACE
Some people think retirement is working for several years in the civil service and retiring to a life of pension. Retirement is planning for a life of less stress at work, not that you stop work altogether. So, what are your retirement plans? Do you have insurance in place? How about retirement savings account? Have you buried your finances in different investment portfolios that will generate you income in years to come?
I have seen some people go broke after retirement because of lack of adequate planning. Don’t fall into that trap of waiting for some pittance called pension from the government or whatever organization before you can survive. That is a life of misery, unless you want to live your whole life dependent on others for your basic survival.
19. HAVE A ADVISOR
I believe so much in the power of imagery. You can only conceive an idea after you have built images in your mind. That is what advisor does to you. Whatever financial race you are in today has been won in the past by another. So make an advisor out of that person. Use their struggles and triumphs as a guide so that you can arrive faster at your destination than they did. Ask them relevant questions and get answers. There is no point making some mistakes if they can be avoided by having a advisor. We should learn to do things from a point of comfort.
20. START NOW, IT’S NEVER TOO LATE
Finally, it is never too late to start planning towards your financial independence. You can start putting in the hard work now and realize the benefits later. The danger is in not starting at all.
Conclusion: As human beings, we all plan in our minds to make each year the best year of our lives. Yet, many people fall short of their expectations at the end of the year simply because their financial planning was not adequate or were too over whelmed by circumstances around them that all their financial goals suddenly came to naught.
While it is okay to plan, it is much better to know the deliberate actions to take at each point in time and to be taking such actions. The article takes a look at 20 must do actions that every individual who really desires to see massive improvements in their personal finance this year.
The author is head and founder of Mumbai-based financial advisory firm Money Mantra. He can be reached at email@example.com