When it comes to your finances, you have to familiarise yourself with the basic universal financial language. Below are some key definitions that I believe are the starting point to gaining knowledge on basic financial concepts.
Now that you know some of the very basic definitions, you should apply this knowledge by:
Your net worth and cash flow should ideally be positive. If not, start thinking of practical ways to either reduce your debt or increase your assets.
Gaining an understanding of the above definitions and performing these actions will certainly shed some light on areas in which you need to improve when it comes to managing your finances effectively.
The act of performing a budget on a monthly and yearly basis may seem daunting but it will essentially let you know if you spend more than you earn or earn more than you spend. It’s about planning, creating and sticking to the disciplines (now!) that will hold you in good stead for your financial future. I expand on this topic further in my article, ‘Fall in Love with Budgeting.’
As you start to explore your saving and investment options, it’s important to really think about the purpose for which you are saving or investing as this will drive the particular outcome. The outcome will determine the amount to be saved or initially invested and the required period to do so.
A good starting point to saving, is to set up a debit transaction on the day that you are paid where a portion of your salary or income will be automatically transferred into a savings account. Essentially, if the money is immediately removed from your check account, you will avoid spending it. (winning!)
When it comes to your investments, this will depend on your risk appetite. The higher the risk, the higher your potential return.
Consult with a financial advisor or your banker for the best savings products and investments that will yield favourable interest returns and dividends respectively. Your options should also allow you to access the money, should you need to.
There is no perfect answer to the question” Is debt good or bad for you?” It all depends on the person and their unique circumstances. The most important thing about debt is that at all times, you have to be in control. Ensure that you always have a view and grasp of all your types of debt (credit card, home loan, car loan etc.) so that things do not spiral out of control. Bare in mind that the lower your debt, the higher your net worth. This is what you always should be aiming for.
Always remember, the Working Gal is in charge and on top of her game, even her finances.