Personal Financial Management: Follow Up

About a year ago, I had written a post about personal financial management, and thought that it'd be a good idea to do a follow up - let you know how well these tips have actually worked for me, and reflect on them a little bit.

We'd discussed some common money mistakes that we make:

• Not prioritising savings

• Having a very vague idea of where your money goes

• Forgetting non-monthly expenses in monthly budgets

• Spending more than we need to

• Living paycheque to paycheque

• Getting into unnecessary debt

And we also discussed some tips to help us avoid these mistakes:

1) Prioritise savings: I think this is one of the tips that has worked best for me, and one that I've been able to follow religiously. How did I do it? I set a savings target that is a percentage of my income, and whenever any money comes in, the first thing I do is transfer the target into savings, and treat that as an expense. The savings target will obviously depend on you - some people do 5%, some 10%, some can probably do 50%!

It's also been very helpful to me to set up a separate savings account at another bank - this way, I've made it harder to be able to withdraw from this particular account! 

I'm interested to hear - what are some systems you've set up to make sure you prioritise saving?

2) Know where your money is going: I've been amazed at how helpful this has been! Just being able to track where and when I spend has enabled me to save much more than I had before. I highly, highly recommend Toshl. I use both the app, and the desktop version, and add all my expenses as soon as is possible. 

3) Create a budget: Going beyond just knowing where you're spending to actually planning your spending, a budget is the important next step in personal financial management. I haven't been able to use this for all my expenses, but using Toshl, I'm able to track where I spend the most, and have created budgets for these categories. 

What are some tips you use when creating and managing budgets?

4) Cut out unnecessary expenses: Important note - this is NOT advocating misery! However, it's definitely an important part of the journey toward financial freedom, and it's a function of being able to execute tip number 2 properly. 

Personally, at the end of the month, when I sit down and look at my month's activities on Toshl, I'm able to challenge myself on certain expenses - preventing me from making similar mistakes the next month. 

5) Do not live paycheque to paycheque: It may seem like this is a luxury not many of us can afford, but think of it this way- would you be willing to afford it if you were not getting any income for the next three months and had to live on what you already have? 

Again, being able to successfully implement tips 1 -4 will make it much, much easier to stop depending on the next paycheque.

6) Avoid unnecessary debt: I'm no debt expert, but someone once told me that the golden rule of debt is this - if you're taking debt to buy something that loses value (like a car) as opposed to something that gains value/adds to your value (like education), then that's bad debt. 

I'd love to hear if any of you have tips for avoiding and managing debt!

Personal financial independence may seem like a distant goal - but these tips have helped me significantly, and I hope they do so for you too!