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» Take Charge of your Finances, Today!

October 15, 2018

Take Charge of your Finances, Today!

My philosophy in life and a golden saying that I hope will resonate with you as well is that if you know better you do better. I know that as Working Gals (young professional women), with everything else happening in our lives, we simply do not put in the time and effort to equip ourselves with the vital and basic tools that will help us make informed financial decisions.

So, I have decided to give you a head start and share 4 easy ways to take charge of your finances. Start today!

1. Know the Basics:

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.

  • Assets – refers to all your resources with an economic value (cash balance in bank accounts, vehicle(s), home(s), equity investments, retirement accounts etc.)
  • Liabilities – refers to a financial obligation as a result of a past event (home loans, credit cards, student loans and any other sources of debt)
  • Net Worth – your net worth is calculated by subtracting your total liabilities from your total assets
  • Income – refers to an inflow of money or other resources (your salary, commission, interest income from your investments or savings accounts etc.)
  • Expenses – refers to an outflow of money or other resources (ALL your expenses including food, clothing, bank charges, petrol charges, gym fees, festival tickets etc.)
  • Cashflow – your cash flow is essentially the incoming and outgoings (movement) of cash.

Now that you know some of the very basic definitions, you should apply this knowledge by:

  • compiling a list of all your assets, liabilities, income and expenses
  • calculating your net worth
  • calculating your cash flow

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.

2. Get into the Habit of Budgeting:

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.’

3. Explore Your Saving and Investment Options:

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.

4. Don’t be a Slave to Debt:

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.