ALSO READ: Truth about finances and marriage
Your twenties are an exciting time, as you wrap up your studies, embark on your career and perhaps even start a family. As a woman, it is important you begin saving and investing towards your future now, especially in today’s tough economic times.
Although mastering personal finance is an essential life skill, it is not taught in most schools. This means most adults only learn about money handling once they start earning a living; which could have potentially disastrous results.
Money, for most people is an emotionally charged subject; representing power, love, or even control, particularly in relationships. Research has found that your individual beliefs about money, coupled with your emotional attachment to it strongly influences the way you spend and handle money. Key personality traits such as assertiveness, optimism, and flexibility to change are among qualities linked to smarter money choices.
These essential tips for the modern woman can however make your money work for you, at any age, and keep you financially sharp.
Know where your money is going
The key to creating wealth has always been tied to spending less than you earn. Sheba Njagi is an entrepreneur and head of training at Centonomy. She puts emphasis on importance of coming up with a budget as the first step. A good current budget helps track expenses, but it can also reveal any cash flow problems that need solving. “You need to categorise your expenses. Break them down into those that are top priority-the ones you can’t live without, those that are important but not essential and those that are essential. This helps you identify opportunities for potentially wasted income that can be channelled towards your goals.”
Use the 50-20-30 RULE
In her book All Your Worth: The Ultimate Lifetime Money Plan, Elizabeth Warren shared and popularised the 50/20/30 budget rule. She advises that you divide your take-home money (after taxes) into three categories: essentials, lifestyle, and the future. 50 per cent of your income goes to needs and life’s must-haves such as rent, utilities, food and transportation. 20 per cent goes to wants and involves your lifestyle spending like travel, leisure activities, shopping and gym memberships. Thirty per cent should go into a savings account or a retirement fund.
Handling money responsibly when you don’t have deep pockets takes a great deal of restraint, planning, patience and a strong desire to succeed. Financial experts always advise to ask yourself whether you have financial dreams or financial goals. A financial dream is something you hope for, but a financial goal is something you’ve planned for. A smart financial goal usually has what you plan to accomplish, details on the resources you need to make those goals happen, a timeframe for each goal and how each goal will fit into your budget.
By setting strategic financial goals, you become motivated as well as focused. Putting money aside for specific projects, special occasions, academic or professional courses, holidays or even gifts allows you to reap the benefits of discipline and having an extra income to channel these goals towards. “There’s no need to cut down on your expenses with no financial goal in mind” Sheba says, “without a specific goal you are more likely to go back to an unhealthy spending cycle.”
Actively track your spending
The first step to getting your finances in order is in tracking your cash. “It’s one thing to come up with a good budget but another to stick to it,” Sheba says, “depending on what you like, you can either download a spending tracker app if you are always on the phone. If not, you can write; basically note down every time you spend money.” This helps not only track the major, easily identifiable expenses but also the hidden, often overlooked ones like random purchases made in traffic during rush hour. Not physically seeing where your money is going may seem ill advised but direct debit automation is a fantastic option for saving plans.
ALSO READ: How to save for travel
Sheba cautions against taking on debt for personal use no matter what. “Understand the difference between good and bad debt. Only take debts that will lead to income generation. Using a debt for personal use means you will still have to dip back into your already strained pocket to take care of other responsibilities.”
Find the right bank
Sheba advises first time salaried employees in particular to do extensive research and look at all the fine print when choosing a bank. “Before being wowed by the exclusive services some banks promise, look at the cost of transactions. “A good bank has a secure and user friendly mobile or online banking platform. They should also have free to low cost monthly charges. Aim for banks that help customers track every transaction on the account via text or email for instance.”
Invest as early as possible
Investment is usually targeted to one’s individual goals. According to Sheba, there are three main reasons why people invest and you have to understand what yours look like. “People invest in order to preserve their capital, to generate income or to grow their capital exponentially and for each objective there are specific types of investments that can work.” Fixed deposit accounts, unit trusts or sacco accounts are good examples of investments that preserve capital while giving a fairly decent return. For income generation one can attempt to maximise on a passive business idea which they can work on in their free time. There are also government bonds and treasury bills.