Editor’s note: There are different dietary patterns suitable for particular tastes, body types and health peculiarities, but it is easier with money management: there are certain strategies and tricks that would work for everyone. The key to success is thinking in the right direction. Ken Doghudje, the financial expert contributing to Naij.com, helps you start being rational in the way you earn, manage, store and protect your money. In this week’s column, he talks about the most effective money management techniques you definitely should apply in 2016.
Welcome to 2016! I would like to seize this opportunity to wish you a successful and prosperous year where you achieve all your goals, especially the financial ones. It is my hope that this year would be bereft of many financial challenges for you.
One thing we are all going to do this year is spend money. We will all be directly involved in paying out, disbursing or expending our resources on many things in the next three hundred and sixty-five days.
Most people are not blessed with abundant and unlimited resources, hence, the need to make the most of what we have. Successful spending therefore entails putting your money where you will achieve the greatest value and benefit this year. I am pretty certain that many people agonize over how to deploy their scarce resources. Here are several tips to help you along the way.
Save or invest a portion of your income before you start spending
A new year is a great time to change your approach towards spending. Many people spend first and then save if they have anything left. The flaw with this approach is that there is usually nothing left. Spending everything on your expenses means nothing is left that can produce more wealth or cover emergencies.
A better practice would be to save ten percent in an emergency fund, usually made up of six months’ worth of expenses; ten percent in an account for investment purposes, then you can then spend the rest. Remember that money spent on your expenses cannot produce more wealth for you. So spend on savings, then on investment before your expenses in that order.
Budget and plan your spending
Have you ever wondered before the end of a particular month where your money went and how it finished? If this is you, then you must embrace budgeting, the practice of sitting down to plan what you will spend money on before you actually spend it.
A budget is an excellent tool that shows you where your money is going. Its advantages include better control and understanding of how your funds are being spent thus helping you to make corrections in subsequent periods. I strongly advise you to start preparing a monthly budget henceforth.
Spend on your needs
Your needs are paramount and must be top priority amongst your expenses. These are usually items that you cannot do without. They are the first set of expenses you must clear. Don’t hesitate to take care of them.
Spend on some of your wants
Many finance experts advocate that you shouldn’t spend on what you want, but that is very difficult to do in practice. This is because society has placed a huge premium on us having the finer things in life. Lacking good things makes people miserable, unhappy and desperate, hence they engage in unethical acts just to acquire material possessions.
Please, by all means go ahead to purchase some things you desire but be guided by the fact that you must not sacrifice your needs for them. Plan spending on your wants, don’t spend impulsively.
Curb emotional spending
Are you an emotional spender? Do you spend money on things you don’t need or want, just because of your mood? Is spending money an outlet to express your anger, frustration, guilt, happiness or any other emotion? You are likely to be an emotional spender if you answered yes to any of these questions. Emotional spending is a major challenge for most people, because it involves making purchases based on your feelings. These individuals actually feel better when they spend, even when they don’t have the funds.
You can beat emotional spending by limiting your exposure to advertising. Avoid buying things on impulse, know what tempts or triggers you to spend and curtail these temptations.
Stop carrying substantial cash and ATM cards in your wallet
Carrying huge amounts and having easy access to your debit and credit cards will make it easier for you to spend money. I have heard many people complain about a “magnetic pull” that ATMs have that draws one to make withdrawals from them. By all means if you are going somewhere then consider what you are going to achieve and plan to carry what you need. There is nothing wrong in planning your spend in advance. Keep your cards in a safe place at home and don’t always have them in your possession for they make you spend more.
Hunt for bargains and embrace comparison shopping
Do not buy anything tangible without exploring available sources and searching for the best prices. It even makes sense to purchase during bargain seasons if you can wait. Before I buy anything I check both online and offline stores and look out for the best deals. You could easily save ten to forty percent on the value of an item by being shopping-savvy.
Ask for a discount
It’s not a sin to ask the seller for a discount. Many sellers are in the habit of padding their prices substantially. By all means attempt to bargain or negotiate a better price settlement for your purchases from them. Sellers expect customers to ask for lower prices always.
Resist the urge to acquire the latest technology
Do not let technology hold you captive, thus making you a slave each time the latest gadget or improvement is launched in the marketplace. This is essential when you consider that the old model you have is still in a good shape and can be used longer. Also the new model probably has just a few improvements when compared to the old. The monies spent going after the latest hardware are quite substantial, and could have been spent on other more beneficial items. Please remember that whatever you own does not define who you are.
Learn from your mistakes
Mistakes are necessary in one’s development and progress through life. As surely as the sun rises you will make several mistakes while spending this year. Please don’t punish yourself too harshly for it, instead use them as a steep learning curve with opportunities for progress and development. Oftentimes we spend and regret it later. Don’t let the pain of regret hold you back from becoming better adept at spending money.
Make wise use of your credit
Do not use credit or instruments of debt such as credit cards or personal loans to fund your lifestyle. These instruments generally come with interest and other fees and should only be put to use funding initiatives that will produce more money for you.
Spend on assets, not liabilities
An asset can simply be defined as anything of value that puts money into your pocket, while a liability is something that takes money out of your pocket. Spending on assets is the way to go if you desire to build wealth this year. Take time out to consider wisely whatever you want to put your scarce resources into this new year.
Spend on your financial education
Benjamin Franklin, the great American statesman, was once quoted to have said that an investment in knowledge always pays the best interest. If you desire to be successful in spending money and creating wealth this year, you must be prepared to invest in a solid financial education. Spend some of your resources on useful materials, study and apply the knowledge and see your finances grow in 2016.
Make savings from current expenses
Seek for creative ways to slash some of your expenses where possible. Once you start tracking your money you can easily spot areas where you have been profligate and immediately take steps to plug the leakages. Freed monies can be ploughed into other more beneficial areas of spend.
2016 could yet be your best year ever financially, especially if you start and begin well on a sound financial footing. Being able to spend successfully means an efficient and effective use of current resources in a way that is guaranteed to produce more for you.
The path to wealth is not long and arduous; rather, wealth responds to the application of several laws and principles. It is the product of the interplay of knowledge and strong belief, desire, determination and drive to amass it against all odds. This is why wealth can be created in any environment where the principles are applied. I am really looking forward to sharing loads of insights that will take you down the path to wealth this year and beyond!
Kenneth Doghudje is currently the managing director of GfK RT Nigeria, the West-African subsidiary of the fourth largest market research agency in the world. He promotes Moneytalk and is the author of Money Lessons: Practical Guide to Wealth and Fortune, a collection of his articles on various aspects of personal finance, saving, investing and wealth-building. Reach out to him on money@moneytalkng.com, via Twitter @moneytalkng or Facebook.
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