Managing your money in 2022

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Managing your money in 2022


Summary

  • The beginning of a year is a good time to take stock and strategize on how to achieve financial goals.
  • Some ideologies remain timeless: spend prudently, save aggressively, and prepare for rainy days.

The beginning of a year is a good time to take stock and strategize on how to achieve financial goals. Some ideologies remain timeless: spend prudently, save aggressively, and prepare for rainy days.

However, certain uncertainties like a pandemic can throw you off balance when income drops and expenses increase. The following tips may come in handy at some point on your journey to financial freedom.

CREATE A BUDGET

Like a double-edged sword, a budget prevents spending from compromising other financial goals while motivating conservative spenders to spend their money boldly. It just so happens to be the key that unlocks all the other financial goals.

A budget is a list of all your income – salary, side activities, investments – compared to all your expenses. Microsoft Excel already has a budget template ready for you among other free budgeting apps.

Using percentage allowances like the 50/30/20 rule will help you know how much you can realistically afford based on your income. This would mean that 50% of your income would be spent on your needs like rent or food, 30% on wants and entertainment, and 20% on savings.

The goal is to put everything in front of you so you can see where each piece is going and adjust accordingly.

THINK ABOUT RETIREMENT

The best time to start investing in your retirement was yesterday; even if you have decades left. The earlier you start, the less pressure there will be in the years to come.

This year, take full advantage of tax relief and employer pension matching. If you contribute Sh15,000 to a registered pension plan, your taxable income will be Sh15,000 less. If your employer matches your contribution, that is, free money, increase your contribution.

CREATE AN EMERGENCY FUND

Unforeseen expenses during the pandemic have been a hard lesson for many. Difficulties in meeting basic needs have prompted 60% of retirees to turn to loans, mostly mobile loans. That’s according to a report from Enwealth Financial Services, a leading pension administrator.

With annualized interest rates approaching 900%, mobile loans are expensive. After the roller coaster of the pandemic, you probably don’t need to be convinced that having cash tucked away for life’s endless financial upheaval is the ultimate financial stress reducer.

The rule of thumb is to save enough to cover six months of expenses – nine months for the self-employed. Open a separate savings account to designate as your emergency fund. If the institution offers a debit card, decline. This might encourage you to use the money for non-emergency situations.

BORROW INTELLIGENTLY

While some major purchases like homes or cars involve taking out a loan, the key to financial security is borrowing what you really need. It’s up to you to decide.

As long as they are sure you can repay the loan, lenders will lend you the maximum amount possible. Often they don’t take into account your ability to achieve other goals. Borrowing as little as possible will increase your income in this budget that we have in the background.

LEARN TO SAVOR

Savoring means appreciating what you have instead of trying to be happier by acquiring more things. Do you need a new phone with all the premium features? Also, don’t equate pleasure with spending money on things and people just to impress. Your money has better uses.

LAST WORD

While guides like these are eye-opening, expert advice will give you an in-depth understanding of specific topics like investments, retirement planning, and more.

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