Disclaimer: I am not a personal financial or investment advisor. The advice in this article does not constitute financial, accounting, or legal advice.
One thing I spent a lot of last year getting over was the taboo I felt around talking about money. The more I discussed personal finance with friends and colleagues, the more I realised that this was an area where I was completely dropping the ball. There were so many things I could be doing to develop the freedom of having financial security! So I asked (sometimes personal) questions, read widely on the subject, and listened to multiple personal finance podcasts. And just one year later, I’m less anxious and more excited about the direction of my financial journey. If one of your resolutions for this year was to improve the state of your personal finances, here are five questions to ask yourself that will help you get to the greener side.
1. What is your savings rate?
Pretty much everyone in the personal finance space recommends having a budget, but this doesn’t necessarily mean you need a spreadsheet with an obsessively accurate record of every single purchase you make! A more minimalist approach is for you to simply pick a savings rate - a percentage of your income - that feels doable for you. As soon as you get paid, automatically put your decided amount into your savings and/or investments - everything remaining can then be used to cover your necessary then discretionary expenses.
2. Do you have a big enough emergency fund?
An emergency fund is an easily accessible amount of money that you have saved for those just-in-case moments - emergencies that you’re not expecting but that could realistically occur at any time. Emergencies could include: unexpected vet bills; dental work (nobody plans to have crippling toothache); car repairs; and/or flights to visit unwell friends/family who live out of town or overseas.
Having a fund like this means you won’t have to go into debt or go round borrowing from your family or friends to pay for these necessary costs that crop up from time to time. A lot of personal finance experts recommend a fund of $1000 as a good place to start, though once you have this saved you might want to think about having enough money to cover 3-6 months of your total living expenses just in case something major happens and you need to take that time off work.
3. What is one new way you can make and invest more money this year?
Maybe you can negotiate a higher salary, or take on a second job, or start a side hustle venture. If you aren’t already investing, maybe you can start dabbling in investing small amounts of money in an index fund through platforms like InvestNow or Sharesies. Making poorly-informed risky investments with large sums of money is ill-advised. But so is delaying the start in your investing journey: every day you delay comes with the opportunity cost of missing out on compound interest. Do as much research as you need to be comfortable dipping your toe into the world of building wealth, but definitely consider investing in 2020.
4. What can you do to spend less on the three top money pits (accommodation, transport, food)?
A roof over your head, a way to get to work, and food are essential expenditures. However, with even a few (but significant) changes, you could be saving yourself thousands of dollars per year. Some changes you could look into include: moving into a place with lower (or zero) rent; moving to an area closer to work to reduce transport costs; taking public transport instead of paying for petrol and parking; investing in a bike; and cooking more at home instead of dining out. How you use the money that you’re not spending on these three areas is up to you - you could save, invest, or spend on things or experiences to make your 2020 more comfortable/exciting/memorable.
5. What is on your 2020 spending wish list? How can you make this goal achievable?
You should plan your financial journey around your values and dreams. If there are places you want to go, things you want to do (or eat), or items/services you’d like to purchase, planning ahead can make having these a reality instead of something that forever languishes on your wish list. Once you’ve figured out what your spending priorities are for the year, think about what you can do to make sure that you achieve your goals. For example, if you’re planning on flying overseas/out of town, you could consider travel hacking your way there by opening an airpoints credit card and getting the bonus airpoints by meeting the minimum spend (as well as any points you get from putting your regular expenses on the airpoints rewards card itself).Support Villainesse