Capital management made easy- here are 7 essential tips for those looking to invest in improving their personal finances to work towards economic freedom.
It is never too early to practise better financial management. Personal finance is a hit-or-miss among many young individuals, and especially since recent turbulent years, their priorities and values have pivoted, alongside their financial needs and goals.
Fluctuations in global employment rates not only shrank our wallets, but rising inflation rates also further deflated our disposable income, and consequently, savings. Many younger generations are struggling to make ends meet, with the prospect of improving their personal finances becoming a challenging goal.
Getting our personal finances right has become a vital part of tracking and handling our daily expenses, as well as determining our future savings and sense of security. While money management may seem like a daunting task, through these essential tips and strategies, you can take a step in the right direction to obtain favourable financial returns.
1. Track your Expenses
Losing control of your spending habits immediately after receiving your paycheck at the beginning of the month spotlights a greater need to address and reform your spending habits, especially if you have no idea what the money is being spent on. Being aware of how much you are spending on a regular basis allows you to better comprehend, and hence, manage your expenses and the rest of your capital. Be mindful of what you are spending on & how much you are allocating to key areas, such as essentials and necessities.
There are a number of applications, such as Hong Kong-based finance management platform, gini, that can help you track your spending and enable you to take necessary steps to better manage your funds.
2. Budget Monthly
Warren Buffet famously said, “Do not save what is left after spending, but spend what is left after saving.”
Budgeting is one of the few most effective methods to organise your finances and spending. Knowing exactly how to split your salary at the beginning of the month will allow you better manage your expenses and avoid being “broke.”
However, it is important to keep your monthly budget goals attainable and realistic. Rather than making drastic changes to your habits, it is always better to start by taking slow and small steps towards changing your behaviour. This will empower you to make more informed decisions for yourself and your finances.
3. Schedule Monthly Bill Payments
Bills are an unavoidable monthly occurrence. Setting aside a dedicated sum of money at the end of each month to pay off these inevitable liabilities is a great way to facilitate proper capital management. This allows us to map out our monthly payments, and differentiate between important and non-essential expenditures, as well as fend off any late fee charges. Having a regular payment history can further improve your credit score and elevate interest rates.
To accelerate this process, one can set up an automated debiting system to deduct capital from your bank for recurring expenses, including loan payments, water and electricity bills, etc.
4. Prioritise Saving
The younger generations’ priorities have shifted, with many showing less of an inclination to set aside money for the future. Individuals can get started by making small contributions that will yield greater value in the long run- a step towards building a secure future. Moreover, opening a savings account strengthens one’s financial stability and security, and enables one to better navigate risky investments. Reinforce the habit of saving additional funds by utilising digital banking services to moderate and automate the process.
5. Declutter Subscriptions Regularly
Many may have noticed small unaccountable charges made to their accounts monthly. These recurring charges often occur when one subscribes to a service or application used on a regular basis. It is incredibly easy and rather common for people to lose track of their subscriptions, especially when they are no longer using these services.
While it is essential for individuals to monitor and keep track of inconsistencies, one ought to take the necessary steps to declutter subscriptions regularly. Make it a habit to review your subscription plans and additional spending charges. A helpful rule of thumb is to cancel all memberships that have not been utilised more than 3 times a month.
6. Make Big Purchases with Cash Transactions
Despite the rapid integration of digital banking solutions in our everyday lives, cash transactions remain relatively the safest way to move forward when making major purchasing decisions, whether buying a house, a new car, or establishing a business. One should always take into account their current savings, as well as their net income and whether it covers these hefty transactions.
By opting for cash instead of credit, one pays the entire, or a large portion of costs upfront, avoiding borrowing money from banks and other lenders, while not having to stress about generating high-interest charges.
7. Develop an Investment Strategy
Investing is one of the most effective methods to convert savings into wealth, helping to support your financial needs and goals, and most importantly, putting your hard-earned money to good use.
The first step forward with investing is to review your current financial situation. In doing so, individuals can evaluate and set attainable financial goals so they can strategize how to meet short-term savings, plan their next holiday, or even invest in a house or business. Investing does come with a certain level of risk, so before getting started, ensure that you have conducted thorough research and have a good understanding of your target market.