How to Manage Your Finances and Get Out of Debt

What are the facts of your current financial situation? Do you have access to information about your income and expenditure, your asset and liabilities? You surely have an idea of how much you earn on a monthly or weekly basis but can you trace where it all goes? Can you calculate your net worth? Ignorance of your financial situation is no joke it is sleepless nights, it is working harder for every penny instead of letting your money work for you, it is anxiety and stress and the list goes on. You must gain control of your money!

I recall that, gaining control of my cash flow was harder than learning how to how to speak in public! At a time, I was making a five figures salary as a software engineer of a medium size IT Company and yet my personal finance was a mess! I had about three credit cards that I was seriously struggling to repay. I also had two personal accounts with two clothing shops and a bond. With every raise and bonus, my spending almost doubled! I was using more than 40% of my income to buy things I did not need. It took me a while to realize that, my financial situation depended on how much I saved and definitely not on how much I earned!

As long as you consume every cent you earn, you are caught up in a self-created trap. You must take action to reduce your expenditure and start saving. Financial freedom requires you to define your purpose.

How do you manage your finances?

Inventories: Get a note book and list all your assets, income, liabilities and expenses. Keep it up to date on a monthly or (preferably) weekly basis.

Review your expenses: Cut your expenditure by 10% for the first 2-3 months and stick to it. I know it will be very hard at first but do not give up. When you get comfortable with the current situation, add another 10% and keep doing it thereafter every 2-3 months. If you are serious about your finance, by the end of the a 12 month period, you would have cut your expenses by at least 30%!

Start saving: Save a portion of every penny you make. Begin with 1% and increase it by another percent every month for a year. Yes, you’ve guessed it right, by the end of the 12 months, you will be saving about 12% of your main income. Now add the 2-3 months living expenses (above) to build a cash reserve. Do not let expenditure rise with income. For every salary increase or end of year bonus, set an automatic transfer to your savings account.

Get out of debt: Pay off debt with the highest interest rate first (credit cards etc…) and maintain minimum payment on everything else first. Seek professional help if you have to. Make sure you only keep one credit card (strictly for emergency use).

Invest wisely: Once you are in financial control and debt free with cash reserve, you can start thinking of investing in the stock market or unit trusts. Read more about it on my site.