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Top 5 tips to whip your finances into shape
Here are my top five personal finance tips to help you get your finances into shape:
1. Pay yourself first
This is the most important. You will often find this advice in finance books, newspaper articles and magazines. For me, at the current moment, I pay myself 40% of my net income (after 20% CPF deduction), leaving the reminder for expenses. And this amount paid (40% of my net income) will be left untouched till my financial objectives are met.
I keep records on how this is used. Should it be used for share investment purposes, it will be recorded in my personal financial books as "Accounts Payable", meaning it will be paid off once profits are realized or from other income streams.
2. Monitor your budget for key areas and place limits if necessary
I do have a budget limit for my credit and debit card expenses. Unless there is a one-off need to spend (for example medical bills and checkups, travel, etc), it will be adhered to in my day-to-day life.
On the other hand, I do not like the idea of living too cheaply. I delight in spending on things that can enhance my life, for example, dinner together with my spouse at some fine restaurants (We love to eat!). But I will ensure that my budget is monitored so there will not be any overspending.
If you have a habit of spending unnecessarily (i.e. spending that you regret later), you can try putting sticky notes in your wallet to remind yourself of your goals.
For discretionary expenses such as mobile phones, I have a ceiling amount to cap the maximum amount that I can spend on such things.
3. Create multiple streams of income and assets
At the moment, my income streams comprise the following:
- Full-time employment
- Career coaching
- Dividends from companies
- Others (which accounts for about 1% and comprises things such as affiliates program etc.)
My portfolio income (liquid assets) consists of company shares and unit trusts. What income streams and assets do you want to develop?
4. Design your personal financial tracking system and ensure that you follow it diligently
I have a system to record my fixed and variable expenses on a regular basis. Every month's end, I will do a consolidation of my income, balance sheet and cash flow statements. From there, I will review my financial profile.
Prior to this, I will do a personal financial stress test. I will plan and have checklists to remind me to stay focused on my goals.
You can use Excel spreadsheets, Word documents or buy external software. Just choose a tool you are comfortable with.
5. Develop a strong sense of financial discipline and positive habits
Both the hardware and software have to be well-integrated. The software refers to your mental abilities, financial beliefs, values and attitudes. Once this is conquered, you can slowly cultivate the discipline to track and monitor your income and expenditure patterns.
The development of good financial habits comes after a period of strict discipline. My attitude towards finance has matured from the time of my polytechnic days where I did not care two hoots about accounting and finance to now where it is part and parcel of my daily check.
These habits have helped me to become a person who is now financially capable to buy assets and create businesses that can help to generate future wealth.
Ken Tan blogs at investment blog KT Wealth. Posted via www.MoneyMatters.sg, your guide on how to make more money, save smarter, invest intelligently, and enjoy your money like a pro. Click here to get our free report on what you must know about financial freedom.
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