How To Manage Your Personal Finances Efficiently

By Geoffrey Kiragu, Founder and Director, Lesedi Developers Limited

Personal financial management is a formidable and an incessant task that can cause even the most economically perceptive individual to become confused or shortsighted.

Wouldn’t it be nice if there were a magic spell or a standard formula that allowed you never to have to worry about money or manage your finances again? Fact is, you do not necessarily have to have a well-paying job or a windfall of money to improve your personal finances. While that may not be realistic, there are some simple things you can do right now to improve your money situation.

For a significant number of people, better money management is all it takes to reduce spending, improve the ability to invest and save, while achieving financial goals that once seemed impossible. Even when it seems like your finances are stuck in a rut, there are still some few tactics you can apply to create a better situation for yourself.

In a world where assets and investments move quickly and we link our bank accounts to innumerable services and make purchases with the touch of a button, financial management is a trickier concept than ever before.

It is worth noting that saving is different from investing as it entails setting aside money you don’t spend now for emergencies or for a future purchase. It’s money you want to be able to access quickly, with little or no risk, and with the least amount of taxes. While investing is buying assets such as stocks, bonds, mutual funds or real estate with the expectation that your investment will make money for you. Investments are usually selected to achieve long-term goals. For the short-term goals, it is advisable to save into cash deposits, like bank account and for the longer-term goals, consider investing because inflation can completely affect the value of cash savings over the medium and long-term.

The following tips can assist in making better decisions that will eventually improve personal financial management.

Identify your needs and wants.

One shilling is as important as one million shillings. Before prioritizing your spending, before you can create a budget or you can truly set effective and reachable financial goals, you have to understand needs and wants. Needs comprise of things that you need to survive. These are things like food, shelter and clothing. They are the essentials while wants are items that are nice to have but not things that you need to survive.

When it comes to personal finances, main priority should always be on your needs. Never save another person’s budget and spoil yours. While you may have budgeted an amount to lend or help your friends, colleagues and family members, overspending on them means you are left struggling with your finances.

Set Your Top Financial Goals

Identifying your financial plans is key – this step helps you understand the purpose of the subsequent steps and provides you with direction when it comes to your money. Do you want to save up for a piece of land? Are you hoping to get out of debt so you can focus wholeheartedly on a down payment for a house? Do you want to set aside 10% of your income starting now to work on your retirement nest egg? These are examples of short-term and long-term financial goals.

Purpose to set one from each category, but if longer-term goals seem like an intimidating commitment, that is okay too. Instead, think of the near future: The goal should be to save 20,000 this year for when I retire. Breaking enormous goals into smaller ones makes them much more palatable.

Make SMART goals

Set SMART financial goals – specific, measurable, attainable, realistic, and timely – to set yourself up for success. An important part of goal setting is also coming up with a list of potential obstacles and ways to overcome them. By creating your contingency plan right from the get-go, you won’t stumble and falter when life gets in the way of your plans.

Get Into the Habit of Budgeting

Ask any personal finance aficionado what he or she does to take care of their finances, and budgeting will be a prime example of what they do steadfastly. Your budget – designed by you – dictates how much you can spend each month based on your income.

When you’re sticking to a carefully constructed budget plan, you will have what you need and won’t be tempted to use credit to spend beyond your means.

If you’re building a budget from scratch, start with all of the income you generate each month – this is how much you have to work with.

On the other end of the equation are all of your expenses. Your expenses can be categorized into fixed (rent, bills, transportation, school fees) and variable expenses (groceries, eating out, shopping, and entertainment). If you’re dealing with debt, you need to ensure that debt repayment is factored into your expenses. Savings, maybe your most important expense, is also considered an expense when building a budget. Getting out of debt will give you peace of mind and as you’re chipping away with debt repayment, the stress will alleviate too.

Track Your Spending

This step of tracking your spending goes hand in hand with budgeting – if you aren’t watching where your money goes each month, you’ll have no idea if you’re adhering to your budget or blowing through it. Most people aren’t genuinely aware of how much they spend on groceries, shopping, or other miscellaneous expenses each month. Tracking your spending could be an incredibly eye-opening experience that could shift the way you spend your money. For example, you could learn that you spend a significant amount each month on meals during the workweek. The sticker shock of this may lead you to packing your lunch twice a week.

Financial management lightbulb

With these goals in hand, you’ll be motivated to budget, automate your savings, and stay away from debt.

Have some properties that you can convert into liquid cash easily

Assets like stocks and bonds are liquid since they can be converted to cash within days. However, large assets such as property, plant, and equipment are not as easily converted to cash and they may take up to months.

Have a side-hustle that adds value

Earning extra income will improve your life and enable you for example to save for big purchases, such as a vacation and empower you to become more diversified with your income streams.

Budget for miscellaneous items

Try brainstorming such expenses at the beginning of every month to make sure they’re included in your budget. At the same time, review them regularly to include additional expenses that may be new.