5 Ways You Can Slay Personal Finance

Understanding your cash flow need not be complicated. Understanding the basics of how your money comes and goes and how best to save it is a basic life skill that everyone needs. The formula is simple: Income – Savings – Investments = Expenses.

To stay afloat and avoid the struggle of petsa de peligro (day of danger), save at least one-fourth of your household income. For emergencies, have half a year’s worth of living expenses in a very liquid account. Your jewelry, house or car may not give you the best deal if you need funds ASAP. So, how much of those things you’ve accumulated should be something to consider. Essentially, cash flow management means being ready for any of life’s curveballs.

Being clear about what you’re saving up for is a great way for you to zero in on what needs to get done. One must always have a priority list to see the goal clearly, after all. To get the job done and have you slay at managing your personal finances, here are 5 pro-tips to live by.

Increase your inflow

“Never rely on single income” is one of the things Warren Buffett lives by and it’s no wonder he’s amassed so much wealth. You don’t have to do things in crazy large scales like he does, but it pays to understand the importance of having multiple income streams. Whether you’re a full-time employee, a freelancer, or an entrepreneur, there’s always something else you can do.

Investments are the quickest way to go in terms of starting a second stream. You can even get into it for as low as P1,000. How about starting a side hustle? Instagram is great for selling any of your pretty creations. Just a few good photos on your smartphone (and a filter!) and you’re on your way.  All good things come to those who put in a little elbow grease!

Stop any leaks

Earning more increases the temptation to spend more. Stick to your budget even when pay raises or bonuses start to come in. Remember, you don’t need to own an Apple device from every WWDC announcement nor do you need a growing Birman shoe collection. So, curb reactionary spending and choose wisely.

It’s good exercise to regularly review your expenses to cut out anything you don’t really need. Looking into your fixed monthly expenses would also do you a lot of good. Do you still need cable TV when you’re always on Netflix? Does your unlimited data plan make sense when you have Wi-Fi at home and in the office? These little things, when combined, add up to a lot.

Drop debt

Debt in itself isn’t a bad thing. It can be classified as either good or bad. Good debt is the kind that helps you generate more money and improve your net worth. Bad debt is just the opposite – that, and if you don’t have the money to pay it off. Stay away from bad debt, it’s the last thing you want in your journey towards financial security.

Always pay your credit card on time. If you need to take out a small loan, check in with friends and family first for extra cash. Otherwise, go to a bank and make sure you pay it off immediately or on time. For any existing overdue debt, pay off as much of it as you can and ask your bank how to refinance it. You can get a lower interest rate out of it and make a plan to pay diligently every month.

Embed occasional regular expenses

We don’t spend the same way each month, so make sure to build into your budget funds for tuition fees, semi-annual insurance premiums, annual membership fees, anniversaries, and other special occasions. Mapping out these big expenses that occur every year on a monthly calendar (Excel works!) should be able to help you plan accordingly.

Plan for Passive Income

Religiously put into your savings and investments every month, even if it hurts. And don’t touch it unless it’s what you had set it aside for. If you haven’t started to do that yet, now is the best time to get at it. By doing so, you set yourself up to beat inflation and to live off passive income – money that is earned with little to no effort. This is why you pay yourself first: to create an income that’s self-sustaining for the rest of your life.

So, if you want to be financially independent and not be a burden to anyone, stay in good health and pay yourself first. Savings and investments are your responsibility to yourself today and in the future.