GETTING ORGANISED: To have our finances in order we have to get organized. This means having all your documents intact, Your bank statements, receipts, wills, insurance papers, tax clearance, and all financial agreements you have with anybody and everybody.
SETTING FINANCIAL GOALS: We all have goals we want to accomplish and to accomplish such we must approach them with a plan. So, we have to use the SMART method. Which stands for??
Specific, Measurable, Achievable, Relevant, and Time-bound to achieve our goals.
So let’s say you want to set a financial goal, you have to consider 2 major things: TIME & AMOUNT.
TRACKING YOUR SPENDING: Your expenses are what I refer to as leakages to your bucket of wealth. Now there is a limit to the leakage, it just has to leak there’s no way around it. It’s up to you to fill the bucket more than it leaks. I hope the analogy is clear.
Your expenses will always be there, you eat, buy clothes, rent or travel, pay bills, etc. So the secret is to track down all your expenses, know how much you spend on food, entertainment, traveling, online courses, shopping, etc.
CREATE A BUDGET: After tracking your expenses (which I recommend you do for 30 days), you have an idea where your funds go. Now budgeting is you giving every penny a job to do. You assign every penny to some work; save, invest, or spend. The budget should be as explicit as possible. There are lots of templates and structures one can use. A popular one is 50–30–20.50–30–20 means 50% for needs, 30% for wants, 20% for saving, investing, and payment of debts in sequence.
REDUCE YOUR SPENDING: There are things you don’t really need but you keep spending on it. How many shoes do you need? Is 10 enough or too much?? So my friend did a calculation last semester, the money spent on hangouts, dinners, and parties has over 20k cost per head. Now that’s quite a lot if you ask but then when we are buying the tickets its 2k here 5 k there at the end it amounts to a large chunk of expenses, which we really did not need. With a budget, you get to cut out all these and more. So like I stated earlier your needs and want might not be the same as mine, so you have to create a bespoke budget that suits you.
PAY OFF YOUR DEBTS: After looking at our expenses, and creating a budget. The next reasonable thing to do is to reduce or clear out our debts.
There are 2 ways of doing this:
1. Using the snowball method: Here you look at the smallest debt you’d have to pay off. Maybe a few hundred bucks and then move to the next one. The aim is to gain momentum and use it to pay off larger debts.
2. The avalanche method: Here you look at the highest interest loan, the loan you pay the highest interest on, and then start from it and move to the next. When using this method the first loan would be the hardest/longest to pay off as the loan is much.
As you take on lesser loans you’d gain momentum because the lesser the interest compared to the previous, the faster you pay it off.