When it comes to smart financial management, there’s no need to reinvent the wheel. While change is inevitable, there are some principles that have stood the test of time – and sometimes it’s worth revisiting these enduring tenets of wealth creation:
- Pay yourself first:
Paying yourself first is about taking steps now to protect your future financial stability. The best way to do this is to set up automated savings to ensure that a portion of your income is set aside every month so that you start building your wealth as soon as possible.
- Wealth is what you don’t spend:
The key to wealth creation is to spend less than you earn and invest the balance consistently into a well-diversified portfolio over a long period of time. Remember, it’s not what you earn that makes you wealthy – it’s how much you save.
- Your finances are your responsibility:
Regardless of your personal circumstances, the sooner you take personal responsibility for your finances, the better. Never rely on someone else for money because circumstances and relationships can change at the drop of a hat, and the financial security you thought you had in the form of a wealthy spouse or pending inheritance is never guaranteed.
- Never stop learning:
In a world of continuous disruption, don’t become complacent in your expertise. Commit to keeping abreast and/or ahead of your area of speciality so that you remain an expert in your field. Remember, you may lose your job, but you can’t lose your knowledge.
- Know the difference between good debt and bad debt:
From the outset, understand the destructive forces of bad debt, and the way in which good debt can be used for leverage in your portfolio. Not all debt is bad and, if structured correctly, you can use debt to help build your wealth.
- Never borrow money to acquire a depreciating asset:
Using debt to buy an appreciating asset such as a house or a business is sensible because your debt will reduce while the value of your asset rises over time. But, if you use debt to buy something that loses value over time – such as furniture or clothes – you not only end up paying a lot more than the actual price of the item, but the value of the item starts to decline immediately, which is a terrible combination of forces.
- Avoid lifestyle creep:
As one’s earnings increase, it’s easy to slack off when it comes to keeping track of expenditure. What used to be considered luxuries can quickly become necessities that form part of your regular monthly expenditure. As and when your earnings increase, keep your expenditure in check by first allocating a portion of your increase to regular savings.
- Save for a rainy day:
The value of having an emergency fund can never be overstated. Besides providing one with financial peace of mind, a cash cushion can prevent you from having to borrow money in times of crisis.
- Be open with your partner about your spending habits:
Financial infidelity can be financially and emotionally devastating, so play open cards with your spouse or partner when it comes to money. Set the ground rules for the management of your joint finances at the outset of your relationship, and don’t keep financial secrets from each other.
- Have a clear picture of what financial independence looks like:
It’s hard to commit to saving and investing if you’re not clear on what you’re working towards. ‘How much is enough?’ is a question that every person must answer for themselves. Be clear on what financial independence looks like for you, and then commit to achieving it.
- Sleep on big financial decisions:
Avoid making impulsive decisions, especially when the numbers are big. Whether you’re buying a property, making an investment, or purchasing a vehicle, learn to sleep on your decisions first. Do your research, seek advice, ask questions, do comparative analyses, and consult with those in the know. Delaying gratification will eventually become a habit you will be grateful for.
- A financial plan is contextual:
Find an independent advisor who can help you develop a financial plan that is fully aligned with your personal objectives. Your plan should reflect your morals and values, your lifestyle goals, and your vision of financial freedom.
Financial success starts with good saving habits. Our Financial Experts have been unpacking and providing practical advice on the best ways to preserve YOUR financial freedom. Contact our Financial Advisors to ensure that you are receiving Shariah-Compliant Finance advice.
Anglowealth is an Authorized Financial Service Provider (FSP Number: 46755)
Source: (Moneyweb, 2022)
