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Thursday 16 July 2015

Steps to proper financial management


   



 
financial mgt
IFE ADEDAPO writes on how you can spend within the boundaries of your income
The financial status of individuals, families and companies are growing worse daily. While some retail businesses complain of low patronage, workers in the private sector and civil service are experiencing delayed payment of their wages.
The economic downturn has made corporate organisations as well as manufacturing companies to downsize their workforce.
Similarly, the austerity measures introduced by the government to mitigate the impact of the oil price drop on the Nigerian economy have not achieved much as the value of the naira to dollar has drastically dropped to about N241.
The hike in the prices of essential commodities has also made it difficult for people to save and manage their finances effectively.
The National Bureau of Statistics on Tuesday said that the irregular supply of petrol in the country increased the Consumer Price Index, measuring inflation from nine per cent in May to 9.2 per cent in June.
The irregularity in the supply of petrol and its high price have had some adverse impact on food prices, the NBS explains.
However, financial experts say that the situation can be put under control with proper financial planning.
According to them, understanding how to manage finances will not only help people out personally, but can contribute immensely to business success as well.
They observe that proper control of finances will help in goal-setting and also prepare the individual adequately for retirement.
Therefore, they have pointed out ways of effectively managing personal finances.
Start saving early in life
Experts note that people need to start saving a substantial amount of their income as soon as they start earning a regular pay.
Irrespective of the amount being earned either daily, weekly or monthly, they advise that setting an amount aside will save them in emergency situations.
A financial analyst, Mr. Femi Adeleke, says that parents as part of their role should teach their children how to save.
He says that the control they have over their expenses will automatically reflect when they have a job and start earning more income.
According to him, the savings are meant to cushion the effect of financial hardship.
Later in life, they may be faced with events such as health emergencies, family losses, car breakdown, theft and destruction of property, which can be taken care of with the funds, Adeleke adds.
Involve your spouse in the savings plan
For couples, Adeleke observes that is not good for only one person to be involved in the savings plan.
According to him, sharing expenses and saving together will help the family to make adequate plans for the retirement.
“If your spouse has not been saving, you need to determine whether your retirement savings can cover not only your expenses, but those of your spouse as well,” he says.
Analyse your income and expenditure
For most people who are employees, their income is their salary, Adeleke says. He advises self-employed individuals to have a salary structure designed from their net profit to enable them to earn an income without affecting the earnings from the business.
He says, “There are benefits to be derived from having a proper understanding of the structure of your income and expenditure. You will be able to observe the part of the finances taking up most of your income and that will enable you to save more.
“Develop the habit of computing your expenses on a daily basis and keep receipts of purchases; monitor your cash withdrawals and deposits in the bank using your bank and credit or debit card statements,” he adds.
Control impulsive spending
According to experts, this is an act in which more money is spent consistently than the amount available or when more money is spent than the expected income.
Experts observe that people who are in the habit of spending excessively purchase items on credit and make late payments for the items bought and then resort to borrowing money from friends and families.
To overcome this habit, Adeleke says people affected should start a realistic budget they can live to and make a conscious decision to control their expenses.
As part of an effort to adhere strictly to the budget, he says such people should think in terms of their overall accomplishment of proper financial management rather than something that will give them temporary satisfaction.
“Make reminders for yourself on when each bill is due. That way, you can avoid costly late fees, which can also damage your credit score. The best approach is to pay bills as soon as they arrive,” he says.
Diversify your investments
According to Investopedia.com, you can create a personal virtual mutual fund by investing in a handful of companies you know, trust, and perhaps even use in your day-to-day life.
Experts say investing can be educational, informative and rewarding. By taking a disciplined approach and using diversification, buy-and-hold and dollar-cost-averaging strategies, you may find investing rewarding – even in the worst of times.
They say money can be invested in different types of business such as banks certificate of deposit, stocks, bonds and real estate.
“People will argue that investing in what you know will leave the average investor too heavily retail-oriented, but knowing a company or using its goods and services can be a healthy and wholesome approach to this sector. Add to your investments on a regular basis. This approach is used to smoothen out the peaks and valleys created by market volatility: you invest money on a regular basis in a specified portfolio of stocks or funds,”Investopedia.com notes.
SOURCE: PUNCH.

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