We’ve all had a somewhat challenging year and I thought to start the new year with some basic money management tips. Some may be things that you already do, and some hopefully are new to you, or they spark ideas of what to relook at in your own personal finances.
The thing is, personal finance is really so personal and what works or makes sense to Person A, doesn’t necessarily work for Person B. So take what you can from this list and see what you can do to manage your money better this new year.
Use a budget
Yes, yes. This is the obvious one which every finance blogger is writing about. The reason for that however is that it is such a financial life-changer. You can literally take your finances from “crazy chaos – disappearing money” to “I know exactly what’s going on with my finances”.
This is not only for “rich people” or for those that are earning decent salaries. Oh no, this is a vital skill that everyone needs to learn. And it’s much easier to learn to budget and to form habits when your finances are relatively simple. As you grow your income and your wealth, the habits will stick and you’ll really excel at managing your money.
Here’s a series on Budgeting 101. It includes 3 video interviews and a workbook to get you started.
But the basic summary would be as follows:
- You must spend less than you earn, so work out how to do that.
- Track all your expenses and adjust your budget / allowance accordingly.
Start that Emergency Fund
Again, this is probably something you’ve heard many times. So if you’ve already started your emergency fund, well done! You can now simply re-evaluate whether your fund goal is still relevant and sufficient, and plan accordingly.
If however you have no emergency fund, then it’s time to really start it! I have a few posts on this, but I’ll give a summary version here:
- Decide on an achievable goal amount that will be able to cover some of the emergencies you may have recently experienced. Things like your fridge suddenly packing up, a home maintenance issue, a medical emergency, having to take unpaid leave. The goal right now is just to be able to cover some emergencies without affecting your cash flow.
- Use a separate interest bearing bank account or money market type of savings account.
- Create a plan of how to build up your emergency fund of the next few months.
Read these two posts for more information.
How to build an emergency fund
Where to save your emergency fund
Money management tips for each month of the year
Here are some basic money management tips for the year. Just a few things to think about each month. Feel free to add these to your diary and to include any additional items where you know you’ll need to plan for some extra expenses. Weddings, birthdays, holidays, school fees, school trips, events, etc. If you know about them, you may as well plan for them.
January is for your Net Worth
This is the start of the year and a great time to think about your finances and what you want to achieve over the year. Why not spend a few hours this month working out your Net Worth?
This doesn’t have to be complicated. Just create a spreadsheet where you list all your investments and their values. Add all your bank accounts and the balances. List any assets that are valuable (things that you could sell if you needed the money). And finally, list all your debts. Yes, all of them.
The value of knowing your net worth is that you can see over time if you are actually improving your finances or not. It’s a figure that you can use to compare against each year.
Also, it may highlight accounts or investments that can be closed or consolidated. Sometimes we just have too many accounts with too many companies. Personally I like to keep things simple.
Download my personal finance spreadsheet for free (or make a donation). This will help you track your net worth.
February is for the “Red File”
Create a “red file” this month. This has nothing to do with Valentines Day though and is a little more solemn.
I have a red plastic folder that contains our Wills, certified copies of ID’s, personal letters in case of death, and a whole lot of personal info. Eg computer password, phone unlock codes, details of investments and insurances and where to find important things around the home.
My close family know where this is kept and should anything happen to me or my partner, someone will know what to do.
If you don’t have a Last Will & Testament yet then take a look at this post on why you need a Will. You can start your “red file” with whatever documents or info you have already and simply add to it as you become more organised.
Simply start sorting things out so that if anything terrible happens to you or your partner, your family knows how to deal with it.
March is for Insurance
Take a look at all your insurance policies and see if they are still relevant to you and if the values are sufficient. Make sure that you are sufficiently covered on your household insurance and car insurance. Look at the premiums, excess, extras, etc and decide if it’s still right for you or whether you need to shop around a bit. I saved a lot by moving to another insurer.
Also look at any other insurance policies you may have and possibly chat to your financial advisor to see if what you have is still right for you.
- Life Insurance,
- Disability Insurance,
- Critical Illness,
- Income Protection,
- Pet Medical Aid,
- Your own Medical Aid,
- Gap Cover,
- etc.
April is to Knock Off a Small Debt
In January we looked at all our debts as part of the Net Worth exercise. You may need to update the list a little, but find the smallest debt on your list and make a plan of how (and WHEN) you can pay it off. If it’s a store card or loan account, close the the account too and take away the temptation of more debt.
Doing this will allow you to start what is called the Snowball Method of paying off debt. When this smallest debt is paid off you can use the money that you were paying towards it each month for the next smallest debt. Thus pay the next debt off a little quicker.
Take a look at these posts on paying off debt. I’ve written quite a lot on the subject,
May is to Assess your Credit Score
It’s important to review your credit report every now and then to understand what your credit score is, and to see what accounts are listed. It can happen that someone has fraudulently opened an account in your name and you may not ever know. It’s also not uncommon for account information to be incorrect on your credit report as not all credit providers send through updated account information as regularly as they perhaps should.
So what does this all mean? Basically, check your credit info. See what accounts are listed against your name and make sure it is correct.
Remember you can get a free credit report per year. Go to the websites of any of the credit bureaus and apply online for yours. It’s your right to know your credit health. You need to know where it is before you can get it to where you want it to be.
June is to Evaluate Progress so far
Half way through the year and a good time to evaluate the financial progress you’ve made so far. Take a look at what you have done from the list above as well as any other initiatives or goals that you set. See where you are and decide if you’re on course or if you would like to focus on anything during the month of June.
- Did you calculate your net worth?
- Have you got a “red file” in place? (And does someone know where it is stored?)
- Did you assess all your insurances?
- What about debt? Have you made a plan to knock off your smallest debt?
- Have you analysed your credit report?
- Take the Financial Health Test
July is National Savings Month
July is National Savings Month in South Africa. Use this month to relook at your budget and expenses and to set yourself a savings goal. This can be big or small, but do something.
It’s important to set financial goals and sometimes setting a small and relatively easy goal can help you see just how rewarding it is.
Use this post to see how to set a short-term goal. Whether it be to buy an item of clothing, go on a weekend away or treat yourself to something special. Set a goal and get started.
August is to start Preparing for Year End
It may seem crazy to be thinking about the end of the year when you’re only in August. But, time flies! Use this month to plan your year end expenses.
- Will you be going on holiday?
- Do you need to buy gifts?
- Are you entertaining?
- What extra expenses will you incur?
- Will you have guests staying for an extended period?
- Do you need to service your car?
- Any holiday activities for the kids?
Plan for these expenses now by estimating how much it will all cost. If you get paid monthly then you should have 4 pay days left (August – November) with which to plan. Planning for upcoming expenses is one of the best money management tips you can use. So simple but so effective.
September is to Calculate Your Retirement Needs
How much do you need to retire? You can read the post to get more info on it, but one method to estimate this to is use the “Rule of 25”. Remember though, it’s only an estimate!
The summary version of the “rule of 25” is that you calculate your monthly expenses and multiply it by 12 to get your annual expenses. Let’s say you’re monthly expenses are R18,000; that means that your annual expenses are R216,000. Now if you multiply that annual figure by 25 it will give you a rouhg idea of your retirement need. In this example it’s R5,4 million.
It’s a rough estimate and ones circumstances change over time. Don’t get too fixated on this as there are flaws in the assumptions and we don’t actually know what the future will hold. But…. it does give you an idea of what the minimum amount is that you should be aiming for.
Read the post on how much you need to retire for more info on this and do your own research and use online calculators for more insight.
October is to Plan for Upcoming Expenses
October is the start of Quarter 4 of the year and by now you should have some idea of upcoming expenses for the new year may hold. As you did in August, we’re simply planning for upcoming expenses for the new year. This time however we’re thinking of things such as:
- School fees / University fees
- Books / Stationary
- School uniforms
- Car service
- Home maintencance
- Deposit required if you plan to rent a place or even buy a place
- Upcoming weddings / travel plans / family events that you can’t miss
- Holidays
- Etc
Try to map out when any large expenses may be coming up and then work out how much you should be saving each month towards these expenses.
November is to Set Goals
November is a great time to start thinking about goals for the new year. December can get very busy with family commitments and crazy year-end deadlines at work. So spend time now thinking about the year that has past, what you achieved and what you feel you want to do in the new year.
These goals and plans are not only for your finances. Thinks about your career, family, skills, hobbies, interests, etc.
See why and how I set goals each year.
December is for Reading
Buy a personal finance book to read over December. Most people take a break over this time but even if you don’t specifically take time off, there are a few public holidays and long weekends to take. There are many great local personal finance books and obviously many more international ones.
Personally I prefer local books as they use examples and values that make sense to me. They also mention products and tax implications which are relevant to us and have far more meaning than foreign tax benefits.
It doesn’t matter which book you choose, just find one that looks interesting and make it your mission to read it. Not only will you find money management tips, you’ll probably find great benefit from different perspectives and tried and tested systems that people use.
That’s all the money management tips for now
That’s a wrap. There are so many aspects to personal finance that you could be looking at but you can’t do it all at once. You need to start small, build systems and habits and slowly expand your realm of knowledge and financial management.
Any other great money management tips that you’d like to share?
Please let me know via Twitter or in the comments below.
