Personal Financial Management | Ghana News

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Financial direction

If you don’t want to end up like Kwaku Frimpong by the end of the year, managing your personal finances should be a high skill on your to-do list. Managing personal finances is about understanding your financial situation, exercising financial discipline, and being in control of how money flows in and out of your life.

An important aspect of managing personal finances is the path to an effective way to keep your wits above emotions while making financial decisions. It is equally important to note that personal finance is not about the knowledge needed to control cash flow, but about feeling that you are responsible for securing the financial future of you and your family.

The financial freedom of a people is largely linked to the financial security of their person. That’s why I think understanding how to deploy simple personal financial management skills should be key to discussions about Ghana’s and Africa’s poverty reduction goals.

Here are some tips that will help you become financially healthy and secure.

  1. Analyze your current financial situation.

It is necessary to carefully observe and understand your habits and spending habits. Different people have different traits and show different behavior with money. So asking yourself the following questions can be very helpful:

  • Am I constantly spending too much?
  • Can I easily meet unexpected expenses?
  • Am I living paycheck to paycheck?
  • Do I need to improve my financial habits?

Answering these questions will trigger your financial sense and tell you if you should seriously consider reviewing your personal finance management habits. If you find there is a problem, the following tips may be helpful in regaining control of your financial life.

  1. Always make a budget.

Budgeting is a great way to control emotional spending. It’s a great way to avoid emotional pitfalls and ensure your spending is in control, spending stays on track, and money is saved. Likewise, it can be an effective tool for making better financial decisions, crushing current debt, and achieving long-term financial goals.

However, it is important to note that the budget only adds value when analyzed with the planned approach. Financial mistakes made in one period should not be made in subsequent periods. This makes budgeting the first step towards achieving financial discipline and serves as the cornerstone of effective financial management.

Tips for getting the most out of your personal financial budgeting process:

  • Be realistic – don’t set unrealistic goals
  • Stay consistent
  • Track your finances regularly
  • Clarify your priorities from the start
  • Always keep your financial goals in mind
  • Make a well-detailed budget (map expenses in different categories)
  • Ensure a data-driven approach to expenses (every expense should be well documented).
  1. Pay off your debts.

There is a saying that we don’t need finances but rather financial peace [I think I just made my first dad joke!]. Paying off your debts is important for your financial health and emotional stability. One thing you need to do is make sure your expenses stay below your income. This simple adjustment helps keep you out of debt.

However, if you have incurred debt, here are some tips that will help you get rid of it:

  • List all debts by interest rate. For example, there can be different types of loans including personal, home, auto, secured and unsecured.
  • Sort all loans by interest rate, with highest at the top of the list and lowest at the end.
  • Pay off higher interest loans first.
  • Sell ​​useless items that haven’t been used recently. A simple guideline might be to sell items that have not been used for at least a year. It may be good to use the proceeds from the sale of unnecessary items to pay off a debt with higher interest rates.
  • Temporarily downsizing may be a logical choice. It’s a good idea to reevaluate your discretionary spending. These include gratuity spending, restaurant spending, entertainment spending, unnecessary subscriptions, depreciation of assets, and more. Also, deleting non-value added objects can be a good option.
  • Paying off debt with a second income can be a great idea. Suppose there are two members working in your house. A member’s salary can be used to meet kitchen expenses and savings goals. On the other hand, another member’s income can be used to pay off a debt.
  • Additional sources of income can be discovered. For example, part-time work can be explored like content writing, photography, blogging, part-time teaching, etc.
  • Creating an emergency fund can be another way to avoid getting into debt. Emergency funds should be kept carefully to avoid a situation that requires you to take out a new loan. Pro-tip is that emergency funds can be invested in liquid funds. Thus, it continues to generate value and can be reused when needed.

One important thing to understand is that you have to get rid of your debts yourself. It is true that you will need some form of inspiration. However, with inspiration comes action that motivates your mind to stay financially disciplined to achieve financial peace. Start paying off your debts today and make up your mind to live a debt-free life at all costs!

  1. Always look for assets that appreciate.

There are two types of assets in the world: depreciable and appreciable. Depreciable assets will always increase your list of expenses. So these should be minimized as much as possible. On the other hand, appreciable assets have the potential to increase income and build new assets. So these should be maximized.

Let’s understand how appreciable and depreciable assets make a difference. Let’s say you have a car (depreciable asset). For every day you own the car, it ages and loses value. So that’s a depreciation expense for you. On the other hand, if you own land, its value should increase with inflation and increasing population. Thus, it may make sense to own appreciable assets rather than depreciable assets from a financial management perspective.

  1. Start investing today

Investing is not about being able to invest millions and billions in gold, commodities or financial instruments. Instead, it is a name given to an attitude that must be developed from the start. Often people think that only the rich and the affluent can invest. However, this is a myth and not reality. The thing is, just one cedi you have can be invested to generate a return.

I think saving money is good. I have nothing against saving. Nevertheless, let’s not fool ourselves by putting money in a savings account long term like “investing”. From a basic mathematical point of view, this is not the case.

The inflation rate in Ghana is expected to be around 10.0% by the end of this quarter. By comparison, the highest interest rate on a savings account is currently around 5.5%, even on savings over ~500,000 GH¢. Do a simple subtraction and you will quickly realize that there is indeed a loss of 4.5% (10.0%-5.5%) on that money in your long term savings account.

Do not depreciate the value of your money. If you want to save money for the long term, put it in safe and secure investment opportunities, like treasury bills. Also beware of the many Ponzi schemes that promise unrealistic interest rates.

I asked the team at Maxwell Investments Group what managing personal finances meant to each of them. Our Director for Social Impact and ESG, Mr. Rya G. Kuewor, gave an interesting perspective on “savings”.

“Optimizing and managing personal finances goes all the way back to future goals. Let’s work backwards and ask whether our current savings lifestyles will create financial space for our future goals. Most of us these days are familiar with the familiar rules of saving, tithing, or setting aside, but we need to understand that while saving (cash) isn’t really personal, I dare say even emotional, you will go from month to month, and still emerge sixpence zero-the-richest!

And he is absolutely right! So we need to find a personal or emotional reason to save and tithe ourselves non-negotiably, but in a safe and hidden way in a secure setup. The key here is to hold yourself passionately responsible for your future.

What does it take to achieve personal financial freedom in a nutshell?

The science of personal finance is simple and straightforward to understand. However, it can be difficult to implement the same due to our emotional involvement.

The simple cycle for managing personal finances is as follows:

  1. Develop a saving habit

This can be the hardest part because it has to deal with your emotional brain. There are ways to increase savings. The first is to increase your current income so that you have a surplus to save, but this is not always a feasible option. Another option is to reduce expenses. This can be done by introducing a disciplined approach related to finance into your lifestyle. Adopting financial discipline includes analyzing the current financial situation, developing a habit of budgeting, paying off debt, making smart investments, and repeating the process.

  1. Pay off debts

The simple reason is that debt comes with the cost of interest. So pay them. Also, pay off loans with higher interest rates first.

  1. Make smart investments

This part of managing personal finances requires understanding the market and researching investment opportunities. Making the right investment is all about achieving your investment goal and aligning with your risk appetite.

  1. Repeat the process

Repeat the process to save, pay off debt and invest. Save, pay off your debts and invest. Save, pay off your debts and invest. Higher and smarter investments should bring higher profits and better financial future.

Religiously following the outlined process of budgeting, repayment, saving, and investing can be more than effective in controlling finances and living a life free from financial stress and full of financial peace.

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Dr. Maxwell Ampong is the CEO of Maxwell Investments Group, a leading provider of impact and ICT products and services worldwide. He is also a co-founder of The RIO Corporation, connectors between poor communities and impact solutions worldwide. He writes on trending and relevant economic topics and general perspective articles.

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