You recently graduated from university, landed a job and think that you’ll be making six figures and paying off your student loans in no time.
Then reality sets in. You don’t immediately get the salary and title you dream of, and in the meantime, there’s rent, car payments, utility bills and of course, travel and entertainment expenses. Basically, adulthood comes barrelling down on you and it seems like all your decisions are guided by “should dos” and “have tos.”
But managing your personal finances is a major part of your financial evolution, the more you understand the flow of your money, the better the chance you have of controlling that flow and reducing your stress. Start to think of managing your finances like a business, and that changes the whole complexion of your finances.
Here are some tips on managing your finances like a business.
You need a budget
Just like a business requires having a plan and establishing goals, successfully managing your own finances requires creating a financial plan and setting personal financial goals.
The best way to do this is to start with a budget. Think of a budget as a business plan for your household. It will allow you to see what is coming in and where you are spending it. It can even reveal areas where your money can be better utilised.
Think of it: If you plan a weekend trip to Toco, wouldn’t you first have to know what condition your car is in, how much you are likely spend on gas, and how much you will have to pay for food or accommodation? Similarly, to create a budget, you will first need to know a few things:
What expenses are necessary in your household?
How much money will be needed to cover these expenses?
How much money is available to spend?
What is required to reach these goals?
Once your plan is in place, you will be able to focus on achieving your personal financial goals.
Eliminate the unnecessary
CEOs of successful businesses have mastered the art of trimming effectively. This means, they eliminate aspects of their business that they don’t need or don’t add value.
Imagine then that you are your own CEO. Achieving your financial goals involve taking an intense look at your budget and eliminating unnecessary expenses. If you are paying for a lot of unnecessary things such as the drinks bill at the bar five days a week, purchasing breakfast and lunch instead of preparing your own, or even buying that new pair of heels from DSW online every month, you should consider eliminating them from your budget.
Save and invest
When you get paid, automatically transfer a certain amount to your savings accounts by setting up a standing order. You will be igniting the habit of saving money.
One way to save is through investing. Placing your money into investments such as stocks, bonds and other financial instruments that can increase in value overtime has the potential to make your money grow. You can seek out investment opportunities from reputable financial institutions that offer financial products in line with your needs and according to level of financial risk you wish to take. Mutual funds are excellent as they provide an opportunity to invest in a wide range of financial instruments with varying levels of risk. That way, you don’t put all your eggs in one basket.
Insure against risk
Just like a business insures against risks of fire, fraud and structural damage, you should too. Make sure you always have life, home, health, and auto insurance so that in the event something happens to you, your home or your car, you are covered financially.
If you are looking to build a strong financial future, it is crucial have insurance and to start early. With life insurance for example, insurance premiums are positively correlated with increasing age. The best time to invest in a comprehensive life insurance policy would be when you are young and healthy. Do your due diligence, research different options and make sure that whatever insurance you choose is of quality – don’t just choose one because it’s cheap.
In business, it is a rule of thumb that you should not rely on one customer to keep your business afloat. So why should you treat your personal finances any different? Find ways to generate more money by monetising your existing skills. That way the extra income you earn can go towards meeting your expenses.
When you can create multiple income streams for yourself and keep your household and recreation expenses low, you should see a positive cash flow. With the excess cash over the long term, you will be one step closer towards achieving your financial goals.
Running your finances like a business is not a guaranteed financial fix. Just like any challenge or goal you want to accomplish it takes patience, structure, dedication and hard work, but It’s all up to you. Do you want to grow your finances and put yourself in a better space financially? Remember nothing will ever change if you don’t take the actions necessary to make it happen.
(Courtesy The Unit Trust Corporation)