Essential life skills: personal finance

Essential life skills: personal finance

Essential life skills: personal finance

by styleabille , January 27, 2020

Stories

This blog is for the hard times. Primarily the hard financial times.

In turmoil and when the rubber meets the road, it is time to remember the ground rules for managing money: save some, spend some, and give some.

1- Save some because you will need every penny you have. You will also need to think about the possibility of losing your job. No job is secure, so it is your sole responsibility to think for the next six to 12 months.

2- Spend some; well, of course. This is the way we fulfill some of the needs which may be basic but important. You also need to spend occasionally on items or experiences that fuel you. Favor experiences!

3- Give some. Yes, even in downturn. When you give you
Feel better about yourself
Contribute to causes that matter to everyone including yourself and your loved ones
Pay forward as life must have been good to you one day; if not, it surely will

This philosophy (save some, spend some, give some) needs to be put into action in every individual’s effort to maximize wealth. Everyone has two primary focus areas when it comes to personal finance.

Personal Budgeting

Why should I begin saving today?

There is a clear economic rationale behind saving early. It is every individual’s responsibility to take care of the older self. Stay tuned on our social media platforms for some scenario simulations.

How much should I save?

Saving in the Middle East is easier than saving in other parts of the world. How much a person saves depends on the person’s lifestyle decisions. For each of the following category, one could identify whether she is a low spender, moderate spender, or a high spender.

What tools can I use to help me plan and control my budget?

Saving is a habit. Like any other good habit, it needs commitment and deliberate effort. It helps to have an evidence-based financial plan that one can work against.

Here are some lessons learned when it comes to personal budgeting.

  • Develop a financial plan with set goals; start small by setting attainable saving goals e.g. save for a vacation
  • Have a monthly budget. Plan and monitor your revenue and expenses accordingly. Focus on cutting down on unnecessary expenses e.g. shopping sprees
  • Pay off debts first to avoid “bad debts”. Bank interest rates work against individuals. Remember that credit cards do not appreciate in value: they are “bad debts”!
  • Differentiate between savings. Save separately for short, medium, long term, and retirement. Try not to borrow from one saving pool to pay another. Start a “rainy day” fund and do not touch it
  • Talk to an expert. A good financial planner could be helpful advising on specific circumstances
  • Build experiences rather than an inventory! Experiences last longer, they are oftentimes cheaper, and they are clinically proven to make people happier
  • Give away periodically and systematically. Support a cause you believe in.

Saving/Investment Options

What are the most common savings/investment vehicles?

Technology has made it a lot easier to develop a budget, keep track of expenses, and plan savings. A wide range of software and apps are available to develop, monitor, and stay on top of personal finances. Some apps (Quicken, Mint) integrate with bank accounts so data entry and spend categorization is automatic (this may vary based on your location base!).

Look for an app that allows to

  • Enter data in different currencies
  • Sync across devices (Smartphone, laptop, etc.)
  • Set savings goals and check progress against plan
  • Integrate with calendar and set payment reminders
  • Sync across multiple individuals (if living and sharing a budget with someone)
  • Develop charts, graphs, and export to Excel; slice and dice data in different ways to see trends and patterns
  • Trial the application for free!

What are common saving/investment options in the Middle East?

Investing can seem complex but it really is not. The important thing is to start. Investing in something is (usually) better than doing nothing.

People ask very similar questions when it comes to personal finance

  • Savings accounts or investment products?
  • Invest directly or to hand over the money to an expert?
  • Stocks vs. bonds?
  • Stocks vs. property?
  • Mutual funds vs. ETFs? Money market funds?
  • What level of risk should I take?

As such letting money sit in a bank account (even a Savings or eSaver account) does not help it grow. Individuals should grow three skills

  • Take risks
  • Diversify
  • Give away

Hereunder a handpicked selection of books about money.

https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/1118921283/ref=sr_1_1?keywords=Bogleheads-Guide-Investing-Taylor-Larimore&qid=1579613607&smid=A3T7DQBB0CKEM6&sr=8-1

https://www.amazon.com/Only-Investment-Guide-Youll-Ever/dp/0544781937/ref=sr_1_1?keywords=%2FOnly-Investment-Guide-Youll-Ever&qid=1579613574&sr=8-1

https://www.amazon.com/Millionaire-Next-Door-Surprising-Americas/dp/1589795474/ref=sr_1_1?keywords=Millionaire-Next-Door-Surprising-Americas&qid=1579613549&smid=A3T7DQBB0CKEM6&sr=8-1

https://www.amazon.com/Your-Money-Life-Transforming-Relationship-ebook/dp/B0052MD8VO/ref=sr_1_1?keywords=Your-Money-Life-Transforming-Relationship&qid=1579613532&sr=8-1

https://www.amazon.com/Intelligent-Investor-Definitive-Investing-Essentials/dp/0060555661

For the less nerds, here is our favorite blog about money: https://www.themoneyhabit.org/blog/

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    2 Comments

    1. As. Chartered Accountant and former investment banker, I applaud all initiatives to demystify finance and investing. This is a great contribution to common sense!

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