There is a fallacy that financial planning is for those with ‘a lot of money’… What’s a lot of money anyway? Many are the people who put off planning their finances for a later date when they perceive to have ‘enough’ money to plan for. This attitude holds one from taking control of their finances and keeps them reactive other than proactive in managing money matters.
The basic tenets of personal finance for a secure financial future can be summarized as
- Generate income
- Budget to save
- Save and invest
- Invest to grow and build wealth
- Manage debt
- Protect your investments
Generate Income
Whether salary, business, side hustle etc. you must generate income to build from.
Budget to save
This is basically having a personal spending plan. Draw a list of all your expenses, weed out wastage. Include savings as part of your expenses. One of the major pitfalls to building wealth is lack of having a budget and where there is a budget, lack of discipline in following through. By weeding out wastage, you free part of your income towards savings. You also must have saving and investment goals. These will be your compass to the true north. Your motivation will be in seeing your goals coming alive one day at a time. (watch this space for budgeting tips coming soon).
Save to invest
In my life as a banker, I have seen many ‘fat’ bank accounts. But ladies and gentlemen, you do not grow your wealth by keeping money in the bank so that you can enjoy receiving your bank statements and delighting in perceived growth due to the regular deposits into your savings account. You’ve got to make your money work for you by investing. Any money over and above your emergency fund and funds being held for short term goals for which you’ll need quick access, should be in an investment vehicle. Saving should be a means to an end not an end in itself, the end being to grow your money, build wealth, achieve your goals and secure your future.
Invest to grow and build wealth
Your investment goals will guide where and how you invest, be they short or long term. Each of us have different risk tolerance thresholds and these also will guide the investment options you take. Whatever you choose to do, you must invest if you are to benefit from your income otherwise the income you generate losses value over time if not growing at a pace faster than inflation.
Manage debt
Times are hard!! This is common lingo in our current economic environment. One of the local dailies recently reported that Kenyan’s are now borrowing a lot for consumption. This is not financially healthy at all and leads to a vicious cycle of financial doom for individuals if not managed. Consumption debt is debt used to purchase basic needs like food, rent, fuel, etc. It is money that doesn’t give any returns. If you are in debt, you must plan to get out of it unless the borrowed money is expected to generate income over and above cost of debt and inflation.
Protect yourself and your wealth
This is where insurance comes in. Expect the unexpected and take a cover starting with your health. There are many options available in the market and its best to consult insurance professionals for advice. Diversification of your portfolio is also a way of protecting yourself by spreading risk.
There you have it. You can do it. Start small. Start from where you are, just start. As the saying goes, a journey of a thousand miles begins with one step.
In need of coaching? Let’s connect. Email: euniceouko@alpha-ascent.co.ke. LinkedIn inbox: www.linkedin.com/in/euniceouko. Website: www.alpha-ascent.co.ke.