Most people feel overwhelmed by money management. We are bombarded by advice from financial professionals, credit providers, investment brokers, colleagues, family and friends. Everyone has an opinion about the best way to achieve wealth, yet only a few people actually manage to do so.

Perhaps it is time to take a step back. Instead of trying to find the next big thing, let us go back to basics and instil these basic personal finance principles. Even if you do not achieve spectacular wealth, you will lay to rest much of your anxiety about money.

1. Know Your Money Story

When you think about money, how do you feel? What is the basis for this emotion? What story about money did you grow up with or have you been telling yourself? Money is inextricably linked to our life stories. Sometimes it firmly and rather violently pushes us in a certain direction, and sometimes it makes up the subtle hues that colour the forks in our journeys. Either way, the having or not having of money undeniably shapes our lives. If you know how and why money affects your decisions, you will be able to pre-empt its emotional impact and rather view it as the simple means of exchange that it is.

2. Create a Spending Plan

If you do only one thing to improve your money management, let this be it: create a spending plan. A spending plan is a key tenet of financial freedom. You cannot hope to improve your personal finances if you do not know exactly where your money is going. We tend to underestimate expenses and overestimate income. Write down all your income and expenses for the next 12 months (yes, even the ones that seem insignificant), and identify unnecessary ones that can be trimmed. Be mindful though to not misidentify needs as wants.

3. Live Below Your Means

Wondering how to improve your spending plan? Live below your means. It is tempting to increase your discretionary spending when your income increases. However, instead of making it rain, first tend to your financial health. Increase debt repayments, set aside money for retirement, bulk up your emergency fund. Set up the basic things before you start living the high life. If you apply this principle every time you receive a salary increase or windfall, you will soon see an increase in your wealth.

4. Avoid Get-Rich-Quick Schemes

Everything worthwhile takes time and dedication. There is no quick solution to getting fit, losing weight, building lasting relationships or establishing a successful business. The same goes for attaining financial freedom. Do not fall for a narrative promising easy riches. Life is not a fairy tale. Accept that you have to put in the hard yards and start building something worthwhile rather than daydreaming about a quick solution.

5. Get Out of Debt

Money on credit is not your money. Whether you have a payday loan, credit card, store card, vehicle finance or bond, the money in a credit facility does not belong to you. Credit providers make it sound like you have won something by qualifying for more credit. However, remember such a “prize” comes with heavy-duty strings attached. Take some time to look at your monthly credit instalments and imagine allocating that money to investments instead. There is no payoff to monthly credit instalments (not your money), but you will reap endless rewards from investments (your money!). Get out of debt so you can allocate your hard-earned money more judiciously.

6. Take Out Insurance, but Not Too Much

Insurance is unsexy. No-one wants to think of the day when they will need vehicle theft insurance, disability cover, comprehensive medical aid or life insurance. However, all the events requiring insurance are traumatic in and of themselves and do not need to be amplified by financial stress. Buy some peace of mind with insurance, but also be careful not to over-insure. Not everyone needs the same types of insurance, and not all types of insurance are relevant throughout your life. Regularly revisit both the types of insurance and the providers you deal with and get competitive quotes to make sure you retain the best offer.

7. Save for Your Children’s Education (And Your Parents’ Old Age)

Children are expensive; providing a good education up to tertiary level even more so. Start saving for your child’s tertiary education when they are born. Even if you only manage to save a small amount, the investment horizon of 18 years will grow your money exponentially through compound interest.

An increasing number of people in their thirties to fifties also have to take care of their ageing parents. Plan for this expense if you suspect you might have to take care of your parents, even if the family has not yet discussed the possibility.

8. Always Have Emergency Savings

Life is full of surprises. Some of them are insurable, but most are not. If you lose your income tomorrow, will you be able to cover your expenses at the end of the month? Always have enough money in a risk-free, easily accessible account to cover 3-6 months’ expenses. It will help you sleep better should retrenchment rumours start doing the rounds at your company.

9. Save for Retirement

We have written before about the need to redefine retirement. The retirement system worldwide is broken and requires urgent attention. It is nearly impossible to save enough money over a traditional 40 year career to support you for 30 years of retirement. However, that does not mean you should stop contributing to your retirement fund. On the contrary, save as much as you can. Even if you find a way to postpone dipping into your retirement income, there will come a day when you will need it. Be prepared for that day, because when it arrives, you will have no more chances to increase your income.

10. Just Start

Do not be overwhelmed by your current financial situation and the degree to which it falls short. Only a very lucky few have got everything sorted out. Identify one area that you would like to improve and start there. If you are not making ends meet, create a spending plan. Once you have that in place, you will see where you can free up money for saving. The most important step is the first one. So just start.

If you are unsure where to begin or how to structure your finances, drop us a line. We would be happy to assist, wherever you may be on your financial journey.