Everyone wants to be able to meet their financial needs. The ability to meet these needs at every point in life can be dependent on how prepared you are.
To save yourself from financial crisis in the future, you need to take some steps in the right direction in terms of managing and spending your income.
Financial management can be tasking and overwhelming, but if you stick with it, you will reap the benefits, which include peace of mind knowing that you are prepared for the rainy days without having to run around seeking urgent assistance from people or compelled into taking high-interest loans.
Here are some tips to improve your financial well-being:
Save before you spend
This might sound difficult, however, if you save early, you will realise that you will not miss what you do not see.
Saving anything you can from your income is good, but setting aside a predetermined portion of your income every month will help you to build a saving culture and to achieve your target faster.
Do not spend all your extra cash
If your income increases or you received a bonus, you should also increase your savings.
It is usually common that people increase their expenses when their income increases by getting more expensive electronics like phones, moving into a bigger apartment, changing their cars, giving more money to people, going on expensive vacations or hosting larger ceremonies.
Nevertheless, if you cannot build more savings from your extra income, more money cannot solve your financial problems.
Set aside emergency funds
Prepare yourself for emergencies by setting aside emergency funds. No one likes or hopes for emergencies but you should be prepared, just in case you have one, to avoid borrowing at a high-interest rate or being forced into selling your asset(s) at a low price.
You should have at least 3 months’ worth of expense money stashed away for emergency purposes which can include loss of job.
Invest your savings
Savings alone is not enough to achieve financial freedom. Saving is good but it will not increase your wealth. If you want to grow your wealth, then you have to start investing your savings.
There are several investment options such as stocks or equity, fixed income assets like bonds, mutual funds, pension funds, real estate, or establishing a business.
It is important to study about and understand each investment option before venturing into it. Do not invest in what you do not understand.
- Read also: Retirement: when and how to prepare to be financially ready
- Financial Responsibility: The basics and how to achieve it
- 8 Ways to Save Money in Financial Difficulty
Asset allocation and diversification
One of the most important decisions you will make as an investor is how to split your money among various investment options.
You need to decide on your asset’s allocation – the proportion of your money to be allocated to each asset based on your risk appetite, tolerance, and age, because every investment has different levels of risks with stocks/equity being the riskiest of them all.
It is advisable to have a higher percentage of your investments in stocks when you are younger and to adjust it downwards as you grow older.
Although equity has high risks, it also has high returns especially after a downturn, but then you need to be able to ride it out and buy into the deep to be able to benefit from the bull run when it returns. Thus, it is safer for young people who have other sources of income to invest more in stocks than older people who have retired from work.
Cultivate the habit of spending less than you earn. Have a spending plan and stick with it. Do not go above your budget on the premise of ‘it is just…’ If you add all your ‘it is just …’ expenses, you would be surprised how much you could have saved and invested.
Ifunanya Ikueze is an Engineer, Safety Professional, Writer, Investor, Entrepreneur and Educator.