Financial Planning
Beginner’s Guide to Financial Planning
By Team Shepays
2 days ago
Managing money, investing it and making the right financial decisions are acquired skills. This skill is typically considered to be studied in a classroom, involving complex mathematical calculations using the known data and age-old formulas. However, that is not something people do in the real world when making financial decisions. Financial planning is truly an art that should be known by every person, regardless of gender or race. Here at Shepay, this is exactly what we plan to do – help women be more financially aware and take charge of their own decisions, because knowledge truly is power.
Here are 7 tips for you to take charge of your finances right now:
1. Save, save and then save some more: Start saving a good chunk of your income right now. Whether it is 10% or 25%, you will never regret saving your money because a crisis doesn’t wait for your permission before coming. Even if one is somehow secure enough to withstand a financial crisis, it is always beneficial to have funding of your own to rely on. Being smart with your savings is the only way to have financial security consistently.
2. Learn to manage your money wisely:If you are one of those living paycheck-to-paycheck and get annoyed when someone tells them to save up because you barely have enough at the end of each month, chances are you are living beyond your means. Unplanned expenses can be avoided once you recognise them, or maybe you have been eating out too often and not saving enough. Remember, awareness is the first step to making a change, and no amount is too little to save.
3. Have a personal ledger for all your expenses: Maintaining a personal balance sheet helps you keep your finances organised to know exactly where and how much of your money is going. Writing down the values of your assets and subtracting the value of your liabilities will give you an estimation of your net worth. Paying back your loans on time (if any) and by making smart investment choices through asset allocation, your net worth will slowly but surely increase. Make a budget to have your expenses planned and take control of your finances now.
4. Know thyself: Once you have gotten into the habit of saving money regularly, write down all your monetary goals on a piece of paper and know exactly what you want from your financial plan. Do you need a solid plan to repay your debt, or do you need to save up enough for retirement whilst still enjoying life now? Or both? Think critically about all the ways you need your finances to aid you and list all of them down on paper. You can easily focus on the plan to accomplish your goals if you have a firm list.
5. Manage your debt wisely: Firstly, use debt as a last resort and take only what you know you can pay back. Otherwise, with the growing interest rates, it is not hard to fall into a vicious cycle of taking new loans to pay back old loans. Learn to avoid tax-inefficient loans and credit card debt and build good credit by always paying back all your credit card bills as soon as your salary is credited each month. It is always better to be safe than sorry, especially when it comes to money.
6. Invest: Now that you have all your goals written down and have an idea of what you want to accomplish, there are various ways to compound your savings. Creating a personal investment portfolio can be a source of income through wise asset allocation. Don’t get intimidated by these fancy terms; you will learn as you proceed to make investments with minimal risks and maximum profits. You can invest in asset classes such as equity, debt or cash or even buy a property as a fail-proof investment of your money. Whatever form of investment you choose, be sure to keep monitoring it every now and then.
7. Protect yourself from potential risks: Just like investing is a form of wealth accumulation, insurance is a tested form of wealth preservation. Whether it is life insurance, health insurance, or any other form of insurance, spending a reasonable amount of money now is always better than spending a fortune later. Prepare for all contingencies and make sure that they don’t turn into disasters. Insurance is a way to attain financial security and backing for the future.
Save your future self a lot of trouble by being financially aware and educated now. Take the power of your life into your own hands.
How do I get started?
Firstly, you have come to the right place; educating yourself is the first step to getting started. Don’t get too intimidated by other people; know that these are your finances, and you have the full right to take control over them. Start by tracking your expenses and formulating your goals. Once you know how much you have and what you want, you can plan according to your assets and liabilities to attain your goals. The aim is always to maximise assets and minimise liabilities to increase your net worth.
How do I improve my credit score?
Maintaining a good credit score is a slow and steady process but can save you so much money in the future. The first thing to make sure to do to improve your credit score is to always make all your payments and on time. Keep your debts low by aiming to use 25% or less of your available credit. Always monitor your credit reports to correct any errors if you find any and to be aware of your credit. Maintaining a good credit score can be tricky, but it is very well worth it.
How much do I need to save for retirement?
That depends on person to person, but you don’t need to start working on complicated mathematical equations to know your answer. Firstly, decide the amount of money you will save from your salary each month, then allocate your savings accordingly and keep different purposes of savings in different accounts. For your retirement account, you have to consider your lifestyle and personal expenses. Look at how you spend your money now, how you would wish to spend it in the future after retiring and accordingly save a percentage of that amount yearly.
When is the right time to start investing, and is it worth taking risks?
It is never too early to start investing because when it comes to investments, time is money. The quantity of risk you can take while investing depends on a lot of factors such as your financial status, age and income. But if you have these factors in your favour, then it might be worth it to take a little risk for proportionate gains. However, one must always stay alert, especially when trading in the stock market.