My Top Five Personal Finance Tips

Chiamaka Okoye

Chiamaka, a chartered accountant, ex-PwC, ex-KPMG, is an incoming MBA candidate at the Harvard Business School

In order to build wealth, it’s important to be intentional about planning, monitoring and growing your finances. Here are the top five tips that have worked for me over the years:

1.     Track your expenses

This is very important to understand where the bulk of your money goes and where you might need to cut back on in order to allocate funds for more important projects. I use a comprehensive money management excel spreadsheet I got from Vertex42, which you can find here. It has different sheets for your monthly budget, transaction tracking, savings goals, net worth, monthly report and yearly report. The transaction tracking sheet is where you enter all financial transactions (including income and expenses) and forms the major input for things like your monthly report, which shows you how well you’re doing against your budget for each month.

I naturally prefer Excel because I work with it a lot and I’m most comfortable with it, but if you prefer apps, I used Wally for a while and liked it. You can get it on the Apple store and the Google Play store. You can always try out different options till you find the one that works best for you.

2.     Budget

Just like you would budget for a professional project or business, you need to budget for your personal affairs. I love budgeting because it gives me a clear sense of what I can and cannot afford at a given time, as well as make decisions on what I need to do to be able to afford what is important to me. Combined with tracking your expenses, it is a powerful tool that can help you optimize the use of your money.

In creating your budget, it’s very important to stay as close to reality as possible. It’s very easy to get carried away and set caps that are not realistic, and this can lead to consistently going over your budget. I use the budget sheet in my Excel money management workbook to develop my monthly budget. I have a budget for each of the various categories of expenses that I incur per month, and I come back to it often to see how much I have already spent and how much more I can spend without eating into funds meant for other things.

Also, pay attention to your spending patterns. If I am consistently under-spending in a category, I reduce the budget in subsequent periods and re-allocate the funds to somewhere else where it’s needed, or I invest it.

3.     Minimize cash expenses

I favor card and online payments because they show up in my bank account statement, which makes them easier to track. I record my transactions on a weekly basis (you can do it as frequently as is comfortable for you) and it is often difficult recalling the things I paid for in cash because there is no record anywhere. Keeping your purchase receipts (where available) can help mitigate this. Of course, you can’t eliminate this entirely. Nigeria is still very much cash dependent, and “Iya Basira” and “Kabiru mechanic” will definitely not be accepting card payments.

4.     Invest

One of the cardinal rules of making your money work for you is avoiding keeping large sums of idle cash in your bank accounts. Savings account interest rates are too low to make up for the value your money will lose due to inflation. I personally use a Money Market Fund (MMF) as an alternative bank account. The rates are much higher than I’d get on a savings account and they’re easily accessible for when I need to make longer term, more rewarding investments. I usually transfer my excess funds into my MMF account until I find a better investment opportunity. Most of the major banks have investment arms that offer MMFs.

Here are a few things you can do to get started on your investment journey:

• Take a class to learn how to invest and what to invest in. I recommend Subomi Plumptre’s investment course which I took 2 years ago. She really knows what she’s talking about and it yielded returns for me almost immediately.
• Use an investment platform. There are also a number of Fintech companies that have simplified investing and can help you access multiple investment opportunities. A few examples are Piggyvest and Wealth.ng.
• Join an investment cooperative/club. These are really helpful because they pool resources and can thus get better returns than you would get as an individual. They also help expose you to opportunities you would otherwise not have access to. I’m a member of the Volition Capital investment cooperative.

I would also encourage setting aside a proportion of your monthly income for savings/investment. You should include this in your budget, and you can set up adirect transfer into your investment accounts on a monthly basis.

5.     Set financial goals

It’s almost impossible to arrive at your destination if you don’t even know where you’re going. Setting your financial goals will help you determine where you want to be financially and what you need to do to get there, and would ideally guide your approach to the previous four points.

As with other life goals, you can have a long-term objective (such as achieving financial independence by a certain age) which can then be broken down into medium and short-term goals. Typical goal setting best practices also apply here: your financial goals should be SMART, you should have a strategy for achievement, and be deliberate about taking steps towards achieving them. I personally have a broad picture of my long-term financial vision, and then I have annual goals which I strive to attain through a combination of the activities I explained above.

I hope this helps someone! Please share what’s also worked for you, I’d love to learn!

First published on LinkedIn.