Personal financial management has been a concern for humanity for as long as the money economy has been in existence. However, the COVID-19 pandemic has made the need to actively think about personal finances even more immediate. Whilst times have been tough, there are a lot of financial lessons that have emerged with our new normal.
Below, we have rounded up a few tips that you can use to better manage your personal finances:
Increase your Income by Having Multiple Sources
While it may be easier to focus on one source of income, investing in multiple income streams allows you to spread the risk of income loss. This ensures that when one source fails, you are still able to rely on others and keep your income flowing. You can do this by setting up side hustles, some of which do not cost much to start up, such as consultancies and online jobs. Another good idea is to setup a Money Market Fund (MMF) that gives you passive income. An MMF is an inexpensive way to start investing and a great way to earn interest from money that would have been lying idle in your savings account.
Reduce Your Expenses
Achieving financial independence will remain a pipe dream if your expenses are equal to or more than your income. Living within your means, is a cardinal rule for better financial health. A great place to start, particularly now, is to draft a budget that can guide you on how to utilize your income long before you get it. A budget will enable you to intentionally set aside funds for important commitments and projects such as an emergency fund, rent, school fees, healthcare and entertainment-related ventures amongst others. A good emergency fund should cover at least 3 – 6 months’ worth of your daily expenses. This will offer you peace of mind and help you avoid incurring debts in case of any unexpected eventuality.
Manage Your Debts:
Prudent personal financial management requires that one borrow only to finance projects that generate income or appreciate in value. However, a debt, like most matters, can get out hand if not managed well. To stay ahead financially you have to stay committed to repaying your debts. In the unfortunate event that your income reduces or dries up due to unemployment or other factors, consider talking to your creditors to review your terms and reduce the financial stress on your negatively impacted resources. Being open with your creditors can help you negotiate to increase repayment periods or reduce installment amounts for your credit facility during tough times such as during this pandemic. Maintaining a vibrant credit rating will also give you another chance to borrow in future.
Preserve Your Wealth:
Financial independence also depends on how well you are able to stretch your resources over a longer period of time for you and your loved ones. Investing in vehicles such as a Money Market Fund protects your money against the impact of inflation. It is also important to take up a personal retirement plan to save for that time when your active working years will have gone by and your energy to generate income and grow your wealth is reduced. Another important consideration in helping to stretch your resources, especially for the future benefit of your loved ones or causes you are passionate about, would be to invest in estate planning. Preserve your wealth and have a say (whilst you are alive and well), in how your assets will be distributed and managed in the unfortunate event of your incapacitation or demise.
While we cannot predict what the future holds, we can take measures to ensure that no matter what happens, our financial actions can stand the test of time in any eventuality.
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