Managing Your Money 101

Managing Your Money 101

If there’s one thing the modern education could greatly benefit from, it would be the addition of subjects that actually prepare the student for adulthood. Instead, every year, millions of high school students are unleashed upon the “real” world with absolutely no idea what a mortgage is, how taxes work, and why they should start saving for their retirement in their 20’s. If your parents don’t provide you with a decent money education, you’ll most likely need to learn the hard way, which, more often than not, doesn’t work out very well in your favour. So, let’s skip the learning curve and jump straight to it: here’s a brief introduction to what you need to know about managing your money!

The Essential Rules of Personal Finance

Understanding finance is something that takes years’ of tertiary education to come to grips with and, even then, it’s an ongoing education, so it’s not unusual to feel overwhelmed by the prospect of learning to manage your money. The great news is that there are a few essential (and easy) rules that will help you cultivate positive money habits. These, in turn, will empower you to accumulate wealth, afford the things you want and need in life, and retire comfortably. Let’s take a look....

1. Spend Less Money Than You Earn

The foremost rule of personal finance is to never live beyond your means. Spending more than you earn will only rack up debt, and debt is an expensive trap to fall into. If you find it difficult to keep your monthly spends below your monthly income, you should assess where your money is going and identify where you can tighten your belt. Even small changes, such as cutting down on your daily store-bought coffees, your phone bills, eating out, clothing shopping, etc. can all add up and make a tremendous difference. Remember, the larger the gap between your income and expenses, the more you’ll be able to save and keep aside for life’s important goals, such as buying a house, travelling, having a family, and, one day, retirement.

2. Plan for the Foreseen and the Unforeseen

Saving money is about creating a nest of wealth that will (1) help you afford the (bigger) things you want and need, (2) retire comfortably, and (3) get you through the tough times when your finances take a blow and/or you’re not able to work. Accidents are seldom foreseen, so you need to have savings in place that can act as a buffer while you get yourself back on your feet.

You should also protect yourself and your finances against events that could financially bankrupt you. It only takes a few nights in hospital to run up a bill in excess of R100,000; an accident on the road could totally write off your car; a gas fire at home could destroy your life’s belongings... this is why medical, home, and car insurance plans are essential. No one ever plans to lose everything, but accidents happen and you need to have a plan in place to protect yourself.

3. Make Your Money Work for You

The rich get richer because they make their money work for them. It’s not good enough to just save your money by putting it in some low-interest bank account or stuffing it under a mattress; you need to put it to work so that it constantly generates interest, even while you’re sleeping. Speaking to a financial advisor about investing in property, stocks, bonds, or some other asset is a great idea, but investments can also take the form of a business (starting your own enterprise, rather than making someone else wealthy) or an education (advancing your education and increasing your skill base can make you more employable and land you a better paying job).

Remember, it’s Never too Late to Start

Your finances are about so much more than just numbers and the difference between your income and your expenses. Becoming financially savvy is a frame of mind, really, and it requires the cultivation of positive money habits, discipline, and education. It’s in your power to change your circumstances, bit by bit, and by reading up, speaking to people, and making those small changes, you can steadily take the reins of your finance, regardless of whether you learned as a child or not. It’s never too late!