Marie Kondo Away! 4 Finance Principles to Live By.

Photo by Kelly Sikkema on Unsplash

Financial literacy, a key topic that concerns every individual yet only a handful of the population truly takes the initiative to understand and take charge.

This post is a nudge for you to get back on the wagon focusing on what matters, your personal finance. There are many rules that you can follow, but I sincerely believe it all boils down to these 4 basic finance principles that will help improve your financial health, in both the short and long term.

1. Increase your income
   Let’s be honest, if you do not have an income there really is nothing for you to save or invest from a starting point.
   
   Taking a step back, do you know your exact income level? It’s absurd to say this but I have peers who do not know how much they earn, taxes they pay or the amount of superannuation that goes into their superannuation funds. They pay zero attention and just neglect it.
   
   Pull out your payslip and take a look. Once you have that information on hand, you can then sketch out a rough estimate of your monthly or fortnightly cash flows. Cash flow is essential to grasp the following points and forms the major bedrock in your financial relationship.
   
   With one third of your life spent at work, the easiest and fastest way to gain more wealth is to increase your income and maximise earnings. Be it landing a new job at a bigger (smaller) company, asking for a pay raise or negotiating a better salary package. The fastest way to have a bigger slice of the pie is to ask for it.
2. Spend less than you earn
   Don’t be surprised but I have clients at my previous jobs who make over six figures a year, and yet have no savings or investment plan. In fact they have tonnes of debt with all their pay cheque gone not long after it arrives. There’s no need to keep up with the Kardashians. Just because your friend has all the new fancy electronics or must-haves does not mean their life is perfect, and it could be far from it. For one thing, it could all be from debt.
   
   Once you have some hard figures on your income, map out your monthly expenses. Determine how much money goes into things that you need and things that you want. I’m not the type of person who strictly follows on a budget, only because I rationalise my spendings and know my figures inside out. I have a spreadsheet that tracks my expenditure thus knowing exactly where my money goes. If you are a budget person, go for it. There are various ways for you to keep track, Excel, expense trackers/budgeting apps, or even put pen on paper. Do what works for you to live within your means.
   
   Don’t get into credit card debts. If you can’t pay off the full balance at end of the month, cancel it. Do not spend what you don’t have and never ask your future self to pay for it. Get your bank/credit card statement and first look at all of your direct debits or automated payments. Do you really need all your subscriptions?
   
   It’s a no brainer to say that any amount saved on an expense or outgoing is a 100% return. A penny saved is a penny earned. That’s the best ever return on any investment you can get.
3. Plan for emergencies
   Have four to six months of your monthly expenses in cash savings. Liquidity is important when you need to access your life savings during crisis moments.
   
   If you care to read this far I believe you can grasp how important this point is. Life is expensive, and there’s no guarantee that the next moment you would need some sort of repair or replacement. Always plan for the worst.
4. Investment opportunities
   Seek for low cost investment opportunities. Sounds simple but I think most of my peers (who managed point 2 well) find this most overwhelming.
   
   The genuine most often question is, where/what do invest in? Which leads to, I can’t afford a 10% deposit on a property, that’s too much of a capital injection for me. Investing in a business takes too much time and commitment to build up with high risks and possibly no return for the first few years. Commodities? Shares? IPO? I have no clue and doesn’t it require at least $10k to invest?
   
   The simplest way to start is to first look for a better place to park your cash. Albeit not the best return (when interest rates are so low), having a savings account at 1.5% interest rate is always better than the one at 0.5%. Next will be your superannuation (aka EPF in Malaysia or 401k plan in US). Know how your superfund is performing over the recent years, along with the fees that they charge. Salary sacrifice into it or make additional contributions. It’s tax effective and compounds over the long term, as most retirement scheme will not allow you to withdraw until the age of 65.
   
   But before any investments, it is essential to pay yourself first. Devote time for your health and education, things that will still matter to you years down the road. Love yourself enough to prioritise this.

Always have the right mindset and intention to keep this as a priority. Know that this is not some quick life hacks that will revolutionise your life in 30 days. You have to want it, willing to put in the effort and at the same time commit on the long run. Don’t expect change to happen overnight. Instead set up habits that will help you attain your financial goals. We live in a world where we constantly seek for instant gratification, and I’ll promise you this won’t be it.

As the captain of your ship, take charge and steer it well!