7 Rules Of Financial Management
7 RULES OF FINANCIAL MANAGEMENT.
Do you know the 50/20/30 rule by Senator Elizabeth Warren? This thumb rule means spending 50 percent on needs; 30 percent on wants, and 20 percent on savings. Remember thumb rules are just that, thumb rules. It just helps you with a starting point. Wants and needs are always in constant competition for the scarce resources available, which makes financial management a difficult task. in case you don’t believe it, according to PayScale, the average salary for a Finance Manager in Kenya is Kshs 2,191,506. This reflects the demand for their services in Kenya. Before you think of venturing into financial management careers, you can start practicing financial management on your finances using the rules outlined below.
Rule 1: Plan Ahead.
Failing to plan is planning to fail. You will not get to financial freedom without a roadmap to guide you. Plan for the future, major purchases, and recurring expenses. The first step of planning is practicing basic money management.
Rule 2: Save your Money.
From the rule of thumb mentioned above, save 20% of your salary and this can help you with periodic expenses such as buying a car. Make your savings into a habit and don’t break it. While saving, set financial goals. Determine the short, mid and long-range financial goals. Do a monthly evaluation to know your shortcomings and adjust accordingly. Write down your goals as research shows goals written down are more likely to be achieved than keeping them in your mind.
Rule 3: Distinguish Between Wants and Needs.
This is the most basic aspect of money management. By definition, wants are desires for goods, services, feelings, and other things we would like to have but do not need while needs are things we must have to survive, such as food, water, and shelter. The basic principle is to take care of your needs and only spend on wants after needs have been met. Sometimes the line between wants and needs can get blurry, when this happens, ask yourself this question; “How did I get by for so long without it?”
Rule 4: Keep a Record of Daily Expenses.
You need to keep track of your expenditure even after you start living on your new spending plan. Beware of where your money is going, once you have a record of your expenses and your money organized, you will be able to spend less time getting organized and more time making sense of your situation. If you keep track of your finances and know where you spend the most, you’ll be able to control your money.
Rule 5: Use Credit Wisely.
Use credit for planned purchases only. When you take a loan, it is advised you use the loan to fund a revenue-generating project. This is due to the obvious reason; the loan will be able to pay itself and you get to keep benefiting from the project you funded using the loan. Avoid borrowing from one creditor to pay another, that system is not sustainable and soon it will catch up with you. The golden rule is to make sure you plan for the money before taking the loan, that way you minimize the chance of misusing the loan. Elevate Credit offers affordable loans quickly and efficiently while ensuring your wallet, mind, and spirit are safeguarded.
Rule 6: Don’t Allow Expenses to Exceed Income.
Develop a budget and follow your spending plan as closely as possible. Evaluate your budget and compare actual expenses to planned expenses. Avoid spending more than you earn, because that would mean accumulating more debts each month. Putting yourself in that vicious circle will only land you in a debt trap. When you live according to your means, there is a good chance you will maintain a good credit rating.
Rule 7: Put Your Money to Work.
Take advantage of the time value for money. Economists understand that KSH.10,000 today is more valuable than KSH.10,000 next year. This is due to the effects of inflation which makes Ksh.10,000 today buy more goods than Ksh.10,000 next year. It is therefore advisable to put the Ksh.10,000 into a business or even buy financial instruments like stocks, bonds, and government securities, which will grow your money and enable you to do more with your money.