It’s the beginning of a new year and that means a fresh start to plan and work towards achieving your annual financial goals. If you have never done this before, this is also a great opportunity to start and in this article, I will be walking you through some steps you could take in order to reach your 2022 financial goals.
1. Be aware of your earnings. In order to create a budget and track your expenses, it’s very important that you’re aware of what you actually earn. This means that if you’re a salary earner, you should be aware of not just your base salary (after tax) but also added bonuses and allowances.
If you’re a business owner, you should practice paying yourself a salary which will be a fixed percentage of your business’ profits. This not only helps you track your personal earnings but also helps you manage your business finances better and encourages you to raise your business’ profits. While profits will not be the same every month, you can always forecast your business’ earnings and use this to then forecast your own earnings.
When planning on such uncertain earnings, it’s advised to work out the lowest you could possibly earn based on the forecast and use this figure to create your budget. That way, you will not be disorganized or constrained if your earnings are lower than expected. For students and people who are strictly on allowances, you can also follow these steps using your allowance as earnings.
2. Be aware of all your expenses. Once you’re aware of what you fully earn, it is important to know exactly how much your monthly expenses are. This will help you separate your wants from your needs while helping you budget properly. Write down all your monthly expenses such as expenses for feeding, utilities, children costs, transport, etc. Limit these to those costs that are necessary for living as these are your needs. You should also add to this list, things like haircut expenses and body care expenses e.g. soap. After you’ve taken note of all your needs, you can go ahead to subtract the total cost for these items from your earnings. By doing this, you would be aware of how much you have left to save, invest and spend on some of your wants if necessary.
3. Pay off any debt. If you’ve got debt, it is important to pay it off after you’ve taken out living costs. It is advisable that you work out how much of your remaining income you would pay towards debt each month, starting with the smallest debt as this would be the easiest to pay off and would give you some relief. By reducing your debt, you’d have more money to save, invest and spend with time. This would also help you focus more on becoming more financially responsible to avoid getting into more debts in the future.
4. Budget for some fun. I bet you’ve never heard of this one before, but it’s quite important (and realistic) to set aside some money to spend on things you enjoy doing. This could be things such as traveling, eating out, attending a game, etc. Doing this allows you to be better prepared to have fun because realistically, you do not spend all your income on just food and household items. We all enjoy going out sometimes, hanging out with friends/family, and just indulging in our different hobbies. This is why it’s important to create a budget for these things so we can spend responsibly on these activities and avoid spending all of the remaining income we have.
5. Save. The common rule is to spend 50% of your income on needs, 30% on wants, and 20% on savings/debt. However, because situations and personalities differ, an alternative to this would be to have a target for your savings. For this reason, I have created some savings templates that could serve as a form of records (and accountability) as you save towards your goal. These templates can be found on the MKFinance Instagram page: https://www.instagram.com/s/aGlnaGxpZ2h0OjE3ODQ0NjA1ODc5NzEwMjQ0?utm_medium=copy_link
It is also important that you set different categories of savings goals for yourself. A common category is short-term, mid-term, and long-term savings.
Short and mid-term savings are usually targeted towards smaller projects such as taking a trip or buying a small gadget. On the other hand, long-term savings are usually targeted towards much larger projects like education, buying a house, and even retirement. Added to this, it is also important that you have an emergency fund which is money you save regularly in case of an emergency. Having this is important as it helps you avoid breaking your other savings if an emergency does arise.
For those who live in Nigeria, consider putting a reasonable portion of your savings on platforms such as Piggyvest that give you a percentage annual return on your savings. While it’s desirable to save all your money with such platforms, it’s not advisable to store all your money in one place and as it stands, saving your money in a traditional bank is much safer because of the current hostility towards Fintech companies.
6. Invest. This is a step that is commonly ignored by people as it is seen to be unnecessary. However, the truth is that you really cannot create wealth if you do not invest. Whether it’s investing in a business or investing in an asset, you need to put your money to work. When thinking about investing, the first thing to know is your risk appetite. Do you have a high-risk appetite or do you have a low-risk appetite? This question should be answered in light of both your personality as well as your current financial situation. By no means should you ever invest more than you can afford to lose, and you should never borrow to invest either. Once this question is answered, you can go ahead to do some research about what you want to invest in as it is important that you are very aware of what you’re putting your money into. Do not be misled by hype as many times, this is what leads people to grave losses. Therefore, for your own good, you should understand the asset you’re investing in.
For people living in Nigeria, you can invest on platforms such as Trove, AxaMansard, Chaka, Bamboo, and M36, amongst others. Please confirm that the platforms you invest through are licensed to operate and provide such services. This is another thing you should research about before investing. Additionally, please be aware of fees you may incur from such platforms and how these fees are deducted.
Having a financial plan is very important for reaching your financial goals. I hope this article has been insightful and will be helpful for you as you work towards your 2022 financial goals (and beyond). Please do not forget to like, comment and share this post with your network.
Thank you for reading!