Managing Finances

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No one teaches you how to manage your finances, not in school or at university. Some parents do try to teach their kids about managing their personal finances but majority don’t. So when an individual starts earning money at 16, 18 or 22 years of age, they are overwhelmed by the in-flow of cash and do not know how to manage. Some squander their money, some blindly follow a pack and pile on debt but mostly they will not have a clue what to do.

When I first started earning money, I did not know how to budget. I knew I had to save for a rainy day, I had to put a limit on my weekly spending (food, rent, etc) but I did not know the most important bit, that is how much. I could easily spend $200 or $400 or $600 on food, there had to be a limit, but I did not know that limit. I really needed guidance. I am lucky enough to have parents who are financially very literate and I asked their advice. I would like to share those bits of guidance that I feel helped me immensely in shaping my finances and lead to building wealth.

The magic number is 50%. You should try and save atleast 50% of your earnings. If you can save more than 50% that is great but you should save minimum 50% of your earnings. Below is the breakdown of the budget:

Rent/Mortgage: 25% (max)
Food: 20% (max)
Utilities: 5% (max)
Savings: 50% (min)

You are working to earn money; you are working hard to earn a promotion, get a better job, to earn better pay or salary. What is the point of earning money if you are not interested in managing and preserving it? What is the point of asking for a pay raise or salary hike if you are not interested in managing and preserving your money? Start budgeting, stick to your budget, be diligent and careful with how to spend your money. It is very easy to spend/lose wealth but it is very hard to gain wealth.

Do let me know if you have any inputs/thoughts on budgeting and saving.

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