No matter what your social status is, financial management is crucial. Money is a crucial resource in today’s world, opening doors of opportunities and supporting individuals in achieving their dreams.
In this article, we will address three areas of personal finance:
- Saving
- Budgeting
- Investing
Why Do I Need To Save?
Saving money is an effective way to prepare for significant obligatory expenses such as rent and school fees. By doing so, you can avoid worrying when payments are due. Even if you earn a substantial amount of money, living paycheck to paycheck can be risky because it leaves you unprepared for unforeseen circumstances such as a health emergency, car trouble, or any other type of emergency that may arise. Beyond just saving money, however, you could earn some passive income from investing in various financial instruments.
What If I Don’t Earn Enough?
No matter how much you earn, you should still save. Find a ratio that works for you, even if it’s 5 per cent of your earnings. Because saving is a goal-oriented approach, after some time you start looking for ways to increase your reserves by spending less or trying to earn more. Some people believe that if you don’t earn a lot, your savings should be towards improving your skillset. In my opinion, this is the right approach because it invariably positions you to earn more. If the goal is financial security or freedom, then your savings need to be sizeable.
General Tips for Saving and Investing
- Start early
- Learn to budget
- Invest your money
Start Early
Financial experts have long stressed the importance of starting early when it comes to saving and investment. The longer you stay in the culture of saving and compounding your gains, the more your money grows. Don’t start tomorrow. Start now.
Learn to Budget
To gain control over your finances, the first step is to create a budget. Once you receive your salary, it’s best to plan out your expenses. Many financial experts suggest following the 50/30/20 rule. This means allocating 50% of your income to essential needs, 30% to wants and luxuries, and 20% to savings. However, I would recommend a more frugal approach. Try to save 50% of your earnings and allocate the remainder towards your everyday expenses. But if saving 20% is all you can manage, don’t worry, it’s still a good start. The key point is saving before spending. Don’t spend first and then save what’s left after spending.
Invest Your Money
Your investment profile will depend on your age, goals appetite for risk and the financial instruments available in your country. When I lived in Nigeria, I invested in stocks, agriculture and the money market. I used a ratio of 60 to 40. 60% of my earnings were saved in a money market fund. The returns are small and the charges are somewhat high, but it’s a low-risk investment. The remaining 40 per cent is invested across several fintech instruments spanning agriculture, real estate and stocks. I lost most of the funds I invested in agriculture but I didn’t put all my eggs in one basket. It was a painful experience but I hope I’m wiser for it. Since moving abroad, I’ve changed my strategy. Right now, I invest in stocks and high-interest savings accounts. I do not have much to invest at the moment but I’m consistent.
Tips for Investing Safely
Here are a few pointers for managing an investment portfolio.
- Diversify your investment
- Use Fintech apps
- Invest In instruments you understand
- Minimize expenses
Diversify your investments
You’ve heard this saying so many times; “don’t put all your eggs in one basket”. Spread your funds across real estate, and stocks. Always remember that no matter how well you can predict market performance, you are still guessing. So err on the side of caution.
Use Fintech Apps
Using fintech applications can help you manage your finances more efficiently. With these apps, you can monitor your spending, track your investments, and even automate your investments. Fintech apps also offer a range of features to help you make better financial decisions, such as budgeting tools, financial planning services, and investment advice.
Invest In Instruments you understand
It’s important to understand the value offering of the business you are investing in so that you can interpret how market forces and the business environment will affect your investments.
Minimize Cost, Expenses and Fees:
You have to look out for additional fees or charges on your investments. Traditional fund managers charge relatively high management fees. And other charges and taxes apply to your funds. This becomes another reason to diversify your portfolio across various investment types. \
