Why do the rich get richer and the poor get poorer? The answer lies in personal finance. Personal finance is the financial management which an individual must do in order to obtain, budget, save, and spend monetary resources over time, taking into account various financial risks and future life events. Here are five practical things you can do for a healthy personal finance:
1. Spend less than you earn This is the cardinal point for a healthy personal finance; you should always spend less even when you earn more. This way, you have enough money left to save, invest and use to take care of emergencies. Having a monthly budget and sticking to it will help you discipline yourself to spend less money while taking on private projects, starting a business and investing will help you to earn more money.
2. Every naira is an investment Never underestimate N1, rather see it as that little drop that can make a mighty ocean. Always see the real value of money and how far it can go. Buying lunch of N500 every day may seem easily affordable but when it is multiplied by a month and then by a year, you begin to get the true picture of how much you spend. Let every naira you spend move you forward.
3. Build an emergency fund Saving up an emergency fund is one of the vital things you can do to help your finances. Imagine you suddenly need money to take care of a pressing matter e.g. pay hospital bill. Without an emergency fund to withdraw from, it will be difficult to take care of sudden financial situations that crop up. Financial experts recommend that you have a cash reserve large enough to cover three to six months' worth of household expenses.
4. Be debt free Do your best to pay off all your debtors – this will require discipline and hard work. Money borrowed from family, friends and the bank should be paid off; loans taken to finance a project(s) should be paid off and most importantly, remain debt free.
5. Set up a retirement savings account The truth of the matter is that putting something tangible aside for old age has become an unavoidable necessity. So, start saving today for your tomorrow when you are aged and retired from active work. Open a pension account and follow closely on your contribution and that of your company.
Do you have any other points on personal finance? Let us know in the comments or tweet at us (@StanbicIBTC) and reach out on Facebook www.fb.com/StanbicIBTC