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Managing Your Finances: Increase your wealth

  Aug 20, 2014

One of the problems faced by many professionals is managing their finances. This goes for both the young and old. Be it the bachelor/spinster or the older, married professional with the added responsibility of family life. Expenses will always exist no matter what stage of life you’re in. From the time you start living on your own to the time you have children in school and living off your monthly salary down to when you retire and plan to travel the world. From the simplest situations, expenses evolve over time and sometimes to the most complicated matters involving hospital bills and big loans. Life will always present challenges but however difficult or complex a situation may seem, there will always be simple guide lines that, if followed correctly, will always save you a lot in time and money alike.

To manage your expenses effectively, you have to understand what you’re worth. There are two main components to understanding what you’re worth:, assets and liabilities. Your assets can be broken down further into two main categories, fluid assets and non-fluid assets. Fluid assets are those which can be liquefied easily in a period of three months. A good example would be SACCO savings. When the need arises, one can withdraw their SACCO savings in a matter of hours. Non-fluid assets on the other hand include buildings and land. These sorts of assets are expected to take months to liquefy regardless of your situation. No matter how much it’s worth, you can’t rely on a piece of land when you need to pay school fees in a matter of days. Another complication brought about by non-fluid assets would involve the potential of the assets as an investment in time. Take this for example: you own an acre of land in Machakos you bought some years ago for Kshs. 200,000, and an emergency arises that involves money that you may not have at that moment. On one hand, you can sell the piece of land for Kshs. 350,000 and solve your problem. On the other hand, clearing your emergency by selling the land would mean handing over your title deed to a person who would sell it for millions in the near future. You would rather struggle through a loan knowing that your decision to keep the land would pay off in the long run.

Liabilities on the other hand would include all that which takes away from your earnings, be it that expensive car you always dream of owning or the uptown house you rent. Liabilities will always take away from your savings and add to another beneficiary. To be in a good position, you have to ensure that your assets are always worth more than your liabilities. The greater the gap between the two, the better off you would be. One would expect that his/her position be better when earning more but the usual trend would show that expenses are bound to increase with earnings. A bigger pay check would lead to a bigger car, more fuel expenses and, a better house among many others. Take caution in managing this trend or risk ending up in financial turmoil, tumbling down years back to where you started. One also needs to settle debts as fast as possible. It makes more sense to use your salary to settle a loan earning an interest of 14% than just let your salary sit in a savings account that appreciates as little as 2%.

The best way to manage your worth and ensure that you have a steady increase in your wealth as Ms. Waceke Nduati would put it would be to have a well-planned functional budget. Focus on reducing your expenses and increasing your savings. Start with the least needy expenses, such as reducing what you spend on lunch and entertainment and work your budget up to the greater expenses like what you spend on fuel. Make your budget as detailed as you can, including what you spend on lunch and refreshments. The more detailed your budget is, the easier it is to track your expenses. Make sure you save as much money as you can then invest the money in the best way you can. It is better to constantly invest your money rather than just leave it in a savings account that earns you an interest of just 2% a year.

Simple guide lines, big differences! It will always be easier said than done but follow the simple instructions and you are bound to have it easier than those who didn’t. Always play by the rules of the game and you’ll increase your chances of ending up a winner; defy the rules and you’ll end up watching others from the sideline.

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