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Embrace sound money management skills

By People Reporter
Saturday, January 11th, 2020
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In summary

Personal finance management is one of the conspicuously omitted subjects in most educational systems the world over. 

People assume that money management skills are acquired through trial and error spending methods. 

At month end, employees receive their salaries which are soon diminished, sometimes without any savings. They hop from one month to another always wishing that at some point income received would balance off with living expenses. 

When workers are perpetually broke, the handy excuse is to blame employers for payment of inadequate salaries. Yet the key issue is expenditure patterns that ignore the amount of income earned. Here are causes of poor personal money management and how they can be overcome.

Spending Without Budget

It is not uncommon to hear stories of people who withdraw their full salary and spend it until the wallet is empty. Thereafter, they  begin borrowing for survival. When one prepares a budget, they will determine whether available money will meet planned expenditure. 

It is prudent to examine budgeted items and classify them into: must buy items; good to buy items and nice to buy items. Obvious purchase preference should be given to must buy items. Others may be postponed until sufficient funds are available. 

Preparing a budget is easier done than sticking to its items. One must have discipline to stick to a budget. Living beyond one’s means eventually pressurises someone to buy unwanted luxuries.

Poor expenditure allocations

It is always advisable to allocate money into three categories, that is, living expenses for example food, expenditure on essential needs such as school fees and savings. The percentage of expenditure on each category will differ from one person to the other. However, financial experts have proposed a 50, 30 and 20 per cent among the categories respectively.

Employees who apply prudent flexibility in allocation of personal finance to the mentioned categories manage money better than others. Some end up saving in Saccos to finance capital projects such as owner-occupied housing. Earning a salary without saving is like fetching water using a leaking container. 

Access to loan apps

Mushrooming loan apps have made access to credit so easy that people are literally living on debts payable at end month to take up more. Available credit has been mistaken for income streams which one can withdraw whenever money is required. The cost of credit is interest some of which is chargeable per month on the outstanding balance. 

Personal financial discipline is one way to manage debts. Obtaining credit to invest in income generating projects is more justifiable than using it to live a millionaire’s lifestyle. 

Lack of financial goals

Most employees dream of achieving financial independence but do not set specific goals. Some entertain vague ideas on how much to save to enable them acquire desired fixed assets. They live from one pay cheque to the next without acquiring expected tangibles until retirement knocks on the door.

Employees should prepare financial goals and actualise them through prudent money management strategies. There is need to encourage people to save. Savings can be leveraged for investments which would generate future passive income. 

Unmanageable spending habits

People have over time acquired spending habits that dictate on whether they squander or use money with caution. Extravagant spending is reflected on living unsustainable lifestyles or affinity to buying expensive items at the expense of saving. Changing one’s spending habits may not occur overnight. However, people can develop personal financial management skills through training and practicing its principles. 

One rule of thumb for money management is to intentionally possess limited cash to avoid incidences of impulse buying. Keep a company of friends who are frugal to appreciate the need for calculated spending.

Swimming in wastage

Advertisements are not shy in attracting potential customers to desire buying goods or services that are not required for immediate use. People spend money on items on sale which they already possess. Buying goods on sale on the other hand could help you save but be sure that the purchase is necessary.

Also hone your negotiation skills as a strategy for better money management.    

The writer is a human resource development consultant and author of Transition into Retirement

Email: [email protected]