How to Turn Your Finances Around

It is easy to feel trapped if your finances seem to be heading nowhere. When you are so used to being always broke a week or two after payday, living from paycheck to paycheck or hand to mouth so to speak, you may be trapped in the thinking pattern that nothing is ever going to change until you earn more money. You tell yourself that there is nothing you can do differently to turn things around except more money. This thought keeps you immobilized in one inglorious financial spot, hoping for a better day. You cease to act – until

More money is not the answer. More money is an illusion. If you cannot manage your finances now, more money will only make a bad situation worse. If you have been working for a while, say 5 years and above, stop and look back at times you received a pay increase – either through a salary increase on your current job or moving to a better-paying job. Did you suddenly become an expert with money, having a surplus each month, you the ends stop meeting months or years later?

I am yet to meet an employee who believes his salary is enough. The usual suspect when it comes to why we are not saving is usually low pay. Enough money seems to be a goal on wheels – the more you move closer, the more it moves away. More money generates more spending. Your taste goes up when new items show up on your needs or want list. The struggle continues. There is a song – Never Enough which asks why all that we have is never enough and concludes it’s so sad.

How do we turn our finances around when it seems our income is not enough? The answer is simple and straightforward – change the way you handle money. There are many steps to turning your finances, but all can be condensed into 2:

(a) Pay yourself first

(b) Invest your surplus.

To be able to take these two steps on a sustainable basis, you have to become a new person. You have to change your mindset. If you enjoy spending and hate saving, you will not make it far. You have to love saving and investing and hate spending, so to speak. You will be quick to save, and slow to spend.

PAY YOURSELF FIRST

In very simple terms, this means you save first before you spend. Tax is deducted from your gross income before it gets to you. Treat your savings the same way – take it out before it reaches your eagerly waiting spending arms. You can figure out how simply don’t get the two mixed up. When your salary or income increases, save it. Increase your savings, not your spending. Keep your expenditure fixed. This should become your new financial habit if you want to turn your finances around.

INVEST YOUR SURPLUS

Having paid yourself first, put the money immediately to work for you, to bring in returns, thereby generating more income. Move the money to where it will bring good returns. Do not allow it to linger in your bank account, be it current or savings. If you do, you may find yourself spending it, thereby defeating the whole purpose of paying yourself first. Sounds familiar?

You may be wondering what to do if you have no clue where to invest. Good question. There are two things I recommend you do immediately.

1) Move the money into a fixed-income money market instrument.

This can be a fixed deposit or certificate of deposit (CD), bonds, treasury bills, commercial papers, etc. You can ask your financial adviser or banker for advice. 

2) Invest in your financial education.

This is very critical. Your level of financial literacy determines your rate of returns – and in high-risk investments – if you get your money back. You have to operate from the position of knowledge. The more you know the better off for you. You can kick start the process by reading books on personal finance and investing, listening to audio tapes, and attending seminars. Take it one step at a time.

The moment you make up your mind to change, commit to taking the steps and just do it, you will be well on your way to turning your finances around. Bon voyage!