Week Ended 30^th September 2011

Quote of the Week:    "Success is not so much what we have as it is what we are." Anonymous

Everyone has different priorities in life; however, your finances should always take a front seat in these priorities. Organizing your financial life and deciding what is important does not have to be a burden if you learn how to do it right the first time. Four primary ways to prioritize your financial life include: Invest now for later, pay yourself first, save for a rainy day and always pay bills on time. 

Learn to differentiate between good debt and bad debt, get out and stay out of debt, among others… In a lot of ways, once you have your financial life on track, it helps you to keep the rest of your life heading in the right direction. This is not to say that money is the source of happiness in life, because it is not. However, when your money situation is in order it may help to alleviate stress that affects other areas of your life. Below are a few pointers to help you lead a healthy financial life:

1. Figure out where you are

Before you start worrying about where you want to go, you first have to figure out where you are now. Your net worth is one of the best barometers for measuring financial health, and it provides an easy way to detect whether a longer-term problem may be emerging. You can easily create a net worth statement by tallying up the value of what you own (your assets) and what you owe (your liabilities). When you subtract your liabilities from your assets, you get your net worth. On comparison from one period to another, if your net worth is going down or is negative, you are eroding your finances and making it harder to achieve your goals. 

2. Track your spending

The key to building a strong financial plan for the future is to understand how much you spend and save right now. This is called tracking your cash flow, and it can give you a sense of control and confidence that makes it easier to make financial changes in your life. Obviously, if you are living on a fixed income, this becomes even more important, and establishing monthly spending targets makes it easier to track. The problem with most of our finances is that we talk about it, but we never consolidate and organize our financial data in an easily manageable way so that we can know at any given time exactly where we stand. Using financial planning tools that are personalised to fit your personal finances is one of the best ways to do it.

For instance, utilising a Personal Expenses Diary where you record all your expenses over a certain period of time, so as to be able to diagnose your general financial shape; or sticking to your monthly budget religiously, among others. Whichever way you do it, the exercise is very revealing, bearing in mind that it is hard to really see the complete financial picture unless you write it down. 

3. Adjust your spending

If your expenses are higher than your income then you are living beyond your means and you need to adjust your expenses accordingly so that you don’t go deep into debt. This step is not about punishing yourself or laying blame but it will help you to cut your expenses (or increase your income) so that you can achieve your financial goals much faster. Big events in life can disrupt even the best strategies. Getting married, having a child or even going back to school will require that you make many financial decisions. The main question here is: ‘What has changed in my life that may change items in my financial plan?’ The important thing is to keep reviewing your spending vis a vis your current life stage, to see that you always maintain a state of living within your means. 

4. Set your life goals

Financial goals don’t just happen, you have to make them happen. This step requires you to assess where you want to be 5, 10 or 20 years from now and answer some big questions, such as where you want to live in retirement and when you want to stop working. One tip is to visualize what your life will be like 10 years from now if all goes according to plan. Most people’s goals are realistic, such as keeping up their current standard of living in retirement (with maybe a few upgrades), preventing any financial disasters, and having the freedom to do the things they love, such as spending more time with friends and family. The challenge is however how to structure your finances so that you can achieve your goal and vision.

Bottom Line:

Once you know where you are going, you need a plan to get there. The usual route is to spend less than you earn and invest the surplus in such a way that you can get to your destination much faster. At its core, your strategy is not simply about money. It is about finding the best way to finance what you want out of life, whether that is spending more time with family and friends or building your career, among others. We are all encouraged to ask ourselves, repeatedly, what we can do to be happier and better off a year from now, whether that is saving more money, paying off debt, changing careers or doing more charitable work, being better off is about improvement.

You can send your comments or questions to This e-mail address is being protected from spambots. You need JavaScript enabled to view it , or visit our offices at Ecobank towers, 7th floor, Muindi Mbingu street. You can also follow us on our facebook page- Zimele Asset Management ( Kenya)  

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