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.
-
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.
- 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.
-
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.
- 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.
- 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
