Suggestions for Better Personal Finance

various-currenciesThis is really out of place for this blog, because I’ve so far avoided writing direct professional content. I’m just a bit nonplussed after an acquaintance sent me a flyer for a two-day course on personal finance that costs a non-insignificant sum of money, with content that’s easily found for free if you know where to look. Damned shysters.

Partly so I don’t forget, I’m putting this down here off the top of my head. If you’re reading this, and have questions, have at it in the comments. I’m going to make an exception on work-related content for this post, just because.

Learn how to budget

I’ve argued that budgeting should be a required course for tenth grade and up. It’s a skill that everyone needs, it’s nothing but applied basic math, and if you don’t know how to budget it can ruin you financially. Everything flows from this, because understanding (take home pay – expenses = savings/debt) is all you need to properly manage your finances. Learning this skill is so accessible that Steam, of all platforms, sells the basic You Need A Budget program, and they offer a demo and a free basic course here. You don’t even need the app, just the knowledge.

Track your income, expenses, debt and investments

Easy enough, all this requires is discipline. Put your paycheck number in every month, then track every dollar/euro/pound sterling you spend. Most people should stay away from credit cards, but if you absolutely must, then track everything you charge and consider it as a cash expense so you can pay the card off completely at every cutoff. When you start making investments (more on this later), track those as well. List out all of your fixed expenses (housing, commute, food, heat), then slice off at least 15-20% of your paycheck and put that in a separate savings account so you don’t touch it. What’s left is your spending money for non-fixed stuff. There must be an app for this. Me, I do this with Excel spreadsheets, because I’ve done it that way all my life.

Don’t buy stuff you don’t need

This isn’t necessarily financial advice, but it is good life advice. (I’ll admit I don’t always adhere to this myself.) Especially if you’re young, you’re likely to move at least a couple of times in your life. The less stuff you have, the better. Lucky you, we had to deal with records, cassettes and CDs, large desktop computers and television sets. These days, with so much stuff stored on your smartphone, you can live happily with your phone and a laptop computer (and maybe a tablet for books if you’re a big reader). All you pack is your clothes and you’re off. Everything else is stuff. (I’ll concede that some stuff may be essential, like musical instruments or sports equipment that are used frequently. Hope you’re not a drummer.)

Think hard before making a material investment

“Material investment” in personal finance usually is three things – car, home, business. I joke that there are two more – spouse and kids. Those will significantly complicate matters though so I’ll stick to the three basics. Needing a car depends on where you live. Some cities, you don’t need it. (In my part of the world, if you live in places like Hong Kong, Singapore or Seoul which have great public transport systems you really don’t need a car.) If you do, then put  a lot of effort into researching the best deal, and ask for the help of a friend in finding a reasonably-priced secondhand car. Vehicles repossessed by banks can be great values. Do NOT buy a new car from a dealer, you’re losing 30% of the asset value when you drive it off the lot. Buy the car with cash you saved for this specific purpose – do NOT use financing as that can increase your cost by 5-15% (or more). You’ll also be burdened by the loan for several years. Stay away. A home is very similar, but more complicated. Consult a professional that you trust in the neighborhood you’re looking at. The mortgage terms are a far larger burden than any car. Lastly, before investing in a business, make sure you know what you’re getting into, and do not sink any more cash into it than you are willing or can afford to lose completely.

Taxes: As Certain as Death

Unless you’re fortunate enough to live in one of the few personal income tax-free havens in the world, this is something you need to pay attention to. Again, consult a professional you trust. The tax authorities in other places may not be as unrelenting as the American IRS, but having tax liabilities hanging over your head is never something you want. Make sure this is attended to promptly as per the tax laws, rules and regulations where you work or do business.

Be Careful with “Investments”

If it sounds too good to be true, it always is. You can’t make a huge return on any investment with no risk. That’s like saying gravity pushes stuff up. The more return on your investment is promised, the higher your risk of losing everything is. If the high returns are guaranteed, then it’s definitely a scam, and you should run away as fast as you can.  If you’re told that you have to “invest now” and that it’s a “no brainer” and you “might lose the opportunity” to give them money, run away. Even things like mutual funds are not risk free. A fund can actually lose money. Most well-managed funds are explicit in the kind of risks involved, and will have a track record that you can review. As with most things, consult a professional you trust before giving someone else your hard-earned money to play with.

An extra word on giving other people “loans” especially if it’s a family member or friend involved. Don’t. A loan can potentially damage your relationship, sometimes permanently. If you must help out, then only hand over money that you can afford to lose. Then in your mind and in your accounting, write that money off. If it comes back, then hey, good for you. If the person is unable to repay the loan, that was what you were expecting anyway. But never lend or give someone money that you need and rely on that money being repaid on time. That helps no one, and will almost definitely damage your relationship if the borrower fails to deliver (and let’s face it – there’s a reason they needed to borrow money in the first place).

Invest in your health

Again, another non-financial suggestion, kind of. Depends on where you live. If you have really good socialized healthcare, then you can ignore this. Those of us who don’t have this, setting aside spending money for health and accident insurance, plus annual health checks is a good thing. Doctors, hospitals and drugs are ridiculously expensive out-of-pocket. Some money to facilitate exercise like a gym membership, dance lessons or martial arts sessions is also swell (relieve stress by going berserk on a heavy bag, not by shooting terrorists in Call of Duty while munching Cheetos). Of course, if you live in a city where the streets are safe and there are public spaces that are available, walking, running or cycling every day is free (after investing in good shoes or a bike). Getting sick is a double whammy – you spend on getting well, and you’re unable to work or do other stuff that matters to you while you’re recovering. Vitamins or supplements as recommended by your physician can also be worthwhile, as is a diet that isn’t soda and fast food. It’s worth it to reduce your risks.

Set money aside to have fun

This is important. Not all of us can (or should) live as misers. If you work hard, then you must reward yourself when you meet your goals. Have a list of stuff you want to do, and put price tags beside each thing. Whether it’s buying that shiny new DSLR, or funding a trip to the Maldives, or a month of acting coaching, make sure your reward is something that you really want so that you don’t end up frittering your “me money” on stuff that you’ll end up regretting you splurged on. But please, spend money on making yourself happy. We work to live, we don’t live to work. If you run yourself ragged and it gets you no closer to happiness, then you just might end up a miserable old codger. Tomorrow is never promised. Plan for the future, but don’t forget to live for today.

 

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