Financial prudence for the Holiday season 

By definition, financial prudence basically means planning well in advance and investing in areas where you can expect high returns. It also means having complete knowledge about the money you have and how you can make it grow best.

 

With 2  months to the end of the year, I seem to be playing catch up with my financial goals, thanks to the sky rocketing commodity prices and unforeseen changes.

 

2022 started in very high spirits, with GRAND plans on how to attain financial freedom. But even with water-tight planning, things happened unannounced.

 

If you are in the same boat as me, my encouragement is that It’s not too late to work on and achieve your financial goals. Here are some suggestions:

• Find your WHY

What are the things that bring you inner joy, name them?

Reflect on how much time you devote to the things that bring you joy. For example, how many hours in the day do you spend on them? 

What proportion of your budget do you spend on the things that bring you joy? This is a great time to assess your time allocation and re-align your finances to your values. Learn to say ‘NO’ to the things that are not aligned with your WHY. Remember, time is money only if you leverage it.

• Know your numbers

Just like many of us track the KPIs in the corporate work environment, it is high time we mirrored the same diligence in our personal lives? Some of the key numbers to benchmark are:

• Liquid net worth:

Liquid net worth is the total value of your liquid assets minus your liabilities. If your liquid net worth is negative, it may be time to minimize your expenses.This ratio helps measure your cash runway in the event of any unfortunate eventuality.

 

• Savings ratio: Your savings ratio is calculated by taking the sum of a month’s expenses divided by the sum of the same month’s net income. At a 50% savings rate, you will need 17 years to become financially independent. We all have aspirations to retire at some time, this ratio will help you ascertain your rediness to retire from active employment.

 

• Household expenses ratio; Your housing expense ratio is calculated by taking the sum of all your monthly housing costs and dividing that by your monthly income. Ideally, these should not exceed 30% of your income.

Question is, WHAT IS YOUR NUMBER on these key ratios? Mind the Gap by taking appropriate action.

• Cut back on unnecessary expenses

COVID 19 taught us the concept of essential vs non essential services. It’s critical to take a closer look at your budget, and make sure you are being proactive and disciplined about things like building up that rainy day emergency fund, focussing on ‘needs’ and ‘loves’ while deprioritizing the ‘wants’ and ‘likes’. A quick hack at budgeting is the 70:20:10 rule whereby 70% of your income goes to spending (needs & loves), 20% is investing and 10% is earmarked for giving.

 

1. Think long term

It’s important to keep the big picture in mind when the going gets tough, especially for younger people who have the advantage of leveraging compound interest. List the big-ticket items, like property, that you are aiming to invest in the near future, and make a plan to get yourself in good financial shape to do so. Or, think about what you want your retirement years to look like (yes, even if you’re only 22 years old), and start to plan accordingly. Don’t mortgage your financial future, Pay Yourself first and spend what is left.

1.  Invest in being a good student

Lifelong learning is an important part of a balanced financial portfolio, but it can be a double-edged sword. It takes time and experience to learn how to make sound investment decisions that are right for your long-term financial goals.

Enhance your financial literacy game by listening to podcasts, reading books and seeking professional advice on your financial plans.

 

1. There is no limit to generating more income

Embrace an abundance mentality, stop lamenting about the economy and waiting for the government to save you. YOU are the one to liberate yourself. 

• What skills do you have that can be monetised? In this digital and borderless world, you can earn from your skills in the comfort of your home. How are you leveraging technology to increase your earning potential?

 

Africa is ‘blessed’ with a multitude of problems and therein lies the opportunity to create solutions that can impact communities while making you money? Do you see the glass as half full or half empty?

 

•  What inspires you? 
• What annoys you? 
• What problems do you see in your community?

• Find a healthy balance

Life is about balance— stressing over every decimal point in your bank account at the expense of all joy is hardly a great way to sustain financially prudent habits. So, while it is important to be sensible about saving, investing, and earning money, it is equally important to know when money is well spent.

Again, that means different things for different people. For some, it could mean going on a vacation. For others, it could mean buying ingredients for a home-cooked meal where you get to connect with friends and family. Fundamentally, balance is about learning what true value means, and how the saving and spending of money can help you to achieve it.

• Understand your investments

Investing is the art of putting your money to work without your day to day involvement, for a return. Before investing, understand the Return on investment, the applicable taxes, inflation rate, your risk appetite and tenure of the investment. PS: Average rate of return in Uganda is 10% p.a, be sure to benchmark all your investments on this. If a deal is too good to be true, it probably is.

 

1. Protect your income; the following reflections will help you assess your adequacy in protecting your income.

• Do you have the appropriate insurance cover in place?

• Do you have a named guardian for your children?

• Do you have a named beneficiary for your investments?

• Do you have a plan to distribute your assets?

• Do you have a will?

• Are all your documents properly secured?

Understand where you are and seek help to close the GAP. Success is when your investments thrive and outlast you.

 

1.  Practice Gratitude; count your blessings one by one. Health is the new wealth, don’t take it for granted, leverage it to unlock your potential.

 

After all is said and done, don’t be too hard on yourself if you have fallen behind with your goals. There is no better time than now to catch up on your goals.

 

Remember, “The best time to plant a tree was 20 years ago. The second best time is now.” Chinese proverb

 

If you would like to take a deeper dive into your finances, schedule a complimentary discovery session with us, simply click https://forms.gle/Z1rdsPaAGfMSvHV29 OR send an email to monica@financialfitnessspa.com

You can also join our family platform where we engage with members on effective financial literacy on https://t.me/financialfitnessspa

For God and My Country.

Monica Kasirye Kavuma,CPA

How to make ‘Black tax’ rewarding  and ensure it doesn’t hold you back 

 

How do you deal with black tax? How do you give as you wish vs giving in to society expectations?  These were questions asked during one of my Financial Coaching sessions. I have taken time to ask various people how they have dealt with this complex question and share some of the tried and tested advice. Hope you find it useful.

 

The payouts that you make to extended family outside your planned expenses constitute what has come to be referred to as Black Tax. The term has its origins in South Africa where expert black entrepreneurs found themselves obliged to disburse pay outs to their extended family on a regular basis. Today the term is used casually in speech to refer to such expenses. It has been identified as a struggle for many, and constitutes uneasiness on personal finances in both the long and short run. 

 

Many African households do not have generational wealth, so the first ones from the house to “make it” cannot indulge in their income selfishly but must share a portion of it with the family to keep them living sustainably. Nor can they make individualistic financial decisions as these have a ripple effect on the family’s financial trajectory.

 

The excitement of getting your first paycheck can not be underestimated. At the same time, learning to manage your finances, getting a good start on your savings and making the right financial decisions can be difficult when you’re just starting out.

 

On top of that, many young people have a responsibility to start giving back to their parents and families who have ‘sacrificed’ much to give their children a decent education. It is important to note that failure to handle these expectations may harm one’s own financial wellbeing in the years to come.

For anyone starting out, there is a great deal of anxiety that accompanies the responsibility to support an extended family while at the same time building your career and trying to achieve your financial balance. 

Unfortunately, no one can ever force you to give from an empty cup. Remember that you need to live within your means. You determine your budget, so you can determine how much you are willing to succumb to the real and perceived pressure to give back. 

So how do we learn to manage our finances in a way that helps us support our families without jeopardizing our own financial goals?

1. Be realistic about your money

You cannot take control of your money if you do not understand your financial situation – your income, expenses and commitments. There are many tools that can help you track your inflows and outflows, try out the Personal Financial Statement, a tool that helps you take control of your Financial situation.

2. Ask for help

“We don’t always know how to create and maintain financial boundaries with our loved ones, and this is something a financial adviser/coach can help you to put in place.” Book a free discovery session with one of our experienced coaches.

3. Financial conversations should not be a taboo with your loved ones

It’s important to align with your family/spouse/children your financial goals and a view of your expenses to help them understand what you can afford. Many times our families believe we can afford more than we can. This is why it is important to have open conversations with the people that we trust and for whom we are financially responsible.

4. Empower yourself and your family

Demonstrate healthy financial behaviour, for example, by drawing up your budget and sticking to it. Leverage various available tools like Apps, spreadsheets,etc to embed this in your way of life.

5. Enjoy your income

What would you do if you had all the money in the world? If you were not working, where would you rather be?

Find time to enjoy your hard earned money. Time is an illusion so do not wait till you are retired to enjoy your money. Build mini retirements along your working life. Finding a balance between your financial responsibilities and working toward your own financial goals can give you peace of mind when it comes to your money.

6. Mindset change

You can see it as an investment. You contribute financially, knowing that in the future you will receive your return tenfold. For example, you may have a cousin who needs assistance with school fees. You could then pay the fees, and in return, he fetches your child from school after work whenever you are unable to.

Two, you may view Black Tax as a way of giving without expecting any quantified return. For example, you see a need at home for financial assistance, and you genuinely want to help out of love and care for your family, which is self-satisfying on its own.

7. It’s okay to say NO

We should understand that NO is a complete sentence and warrants no explanation. People always have a ‘Plan B’ so you should not feel obliged to sort out everyone’s financial challenges. Give help, but on budget. Borrowing to sort out someone’s challenges takes you many steps further from your financial goals, and no one will be willing to bail you out.

8. Pay Yourself First

The advantage of “paying yourself first” out of your paycheck is that you build up a nest egg to secure your future, and create a cushion for financial emergencies Without savings, you will be looking at your children as your retirement package which further accentuates the ‘Black tax’ syndrome. 

We are privileged that this generation has quite a number of investment options available, it’s important to gain relevant investment knowledge and seek financial advice.

 

Conclusion:

But how can you best prepare for Black Tax? It pays dividends to have a conversation with your immediate family members and tell them that you will provide what you can, but they must not make you feel as if they are entitled to your money. Set financial goals to know how much you can actually give without financially depriving yourself.

Create a budget plan for the month, and determine where your money needs to go without anyone pressuring you. Instead, you pressurize yourself because you genuinely want to help your family. Black tax can be favorable if you approach it in a healthy and financially savvy way.

Sometimes you may not actually have to give money; time, advice and a listening ear may be all that a person needs to unlock opportunities. Take time to mentor, coach or give opportunities to your extended family, you will reap dividends.

 

Please share your thoughts on whether you have encountered this situation and how you navigated the challenges. Join our community and share your view, Financial Fitness Spa Forum URL: https://financialfitnessspa.com/community/