Financial Planning; a Crash Course

“On average, millionaires invest 20% of their household income each year. Their wealth isn’t measured by the amount they make each year, but by how they’ve saved and invested over time.” …  “I Will Teach You To Be Rich,” by Ramit Sethi

 

 

What takes the largest chunk of your account? Data? Rent? Clothes? Food? Savings? I’m not trying to attack your life choices but it is important to identify just what is taking all your money. That’s the first step to reorganizing your finances. How do you split your income? Do you have specific percentages? How many bank accounts do you have? Do you save? Do you invest?

 

Perhaps the first thing I’d suggest, when you’re trying to get your finances in order, would be getting different accounts for different things. Separating your income into different accounts keeps clear boundaries, and makes it easier to track spending when the funds are in different accounts. I will suggest six accounts – daily spending, emergency funds, ‘turn up’ account, retirement (pension), scheduled payments, and investment account. This doesn’t necessarily mean opening different accounts, banks offer options of accounts within accounts so research and find the bank or banks that provides you the best options; you may end up having to do a combination.

 

 

For a crash course on the different partitions:

 

  1. Daily Spendings account is for the day to day expenses – food, toiletries, that kind of stuff.
  2. Emergency funds account is for stuff that cannot entirely be accurately foreseen such as getting involved in a slight accident, falling ill, or getting stranded and should be approximately equal to three months of your earnings at any point in time.
  3. Retirement account, as the name implies, is the money you stack up for when you eventually retire. There are a lot of pension schemes available, find one that is reputable even if you are self-employed.
  4. Scheduled payments are for those expenses that aren’t quite day-to-day, but come up at about the same time per period, like the house rent – so money can be stacked gradually per month, to be ripe enough by the time payment is due. Electricity bills, Internet and other scheduled payments.
  5. Entertainment or “turn up account” is absolutely important because going out and having fun are a necessary part of life, and if there isn’t an account allocated to it, there would be a temptation to dig into money meant for other things.
  6. The “investment account” is probably the most important account to have, as wealth is ultimately measured by how much investment you’ve made with your income. Investment is not a one-off process but a consistent and continuous process and so it is best you make a habit of directing funds towards this account periodically.

 

 

The great thing about investment is that it is beautifully broad, and there is an amazingly wide range of things you can invest in, depending on the kind of investor you are; Conservative or Risk-taking.

 

 

If you’re ready to take the necessary steps towards financial intelligence, your personal budget would be a great place to start, taking time to break down the monthly income into bits, allocating specific percentages to different needs, and then wants, drawing a scale of preference and deciding what needs are prevalent and what wants can wait till next time.

 

I hope this piece has been helpful. Take charge of your finances. It’s a wise investment.

 

 

Author: Yvonne Edughele

Edughele Yvonne has been a writer since 2016, and has ghost-written over 10 books so far. A graduate of University of Lagos, she has gone ahead to get a certificate in Consumer Behavior Psychology. Yvonne resides in Lagos, Nigeria.

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