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Retooling Your Personal Finance

7 Steps to Retooling Your Personal Finance

Looking to join the rich club? Retool your personal finance for wealth creation with the following steps.

retooling your personal finance blog

Retooling encompasses the means to your financial planning – saving, investing, and growing money. Retooling enforces discipline in your personal finance.

You, as an entrepreneur, maybe doing back-breaking work to get things off the ground and keep them afloat. But if you don’t have enough money left for you, it’s going to dampen your spirit. You must focus on wealth creation for yourself like you would for your enterprise. The best way to do it? Retooling your personal finance.

🚀Let's get into action mode! 🚀

#1 Show Me the Money!!!

Have you seen actor Tom Cruise shouting “Show me the money!!!” at the top of his lungs in the film Jerry Maguire? Well, we are suggesting the same but different. We’re asking you to remind yourself that financial discipline starts with an intention.

The intention being, retooling your personal finance for wealth creation! Once you set the intention, ask yourself to show you the money (maybe even scream like Tom Cruise for effect).

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How? Use the below list to examine your personal wealth:

Evaluate your cash flow: income (from one or multiple sources), non-negotiable expenses (home utilities, personal utilities, ongoing EMIs, etc.) and reserve cash in the form of savings, investments, inheritance and so on.

Track debts: money that you owe others and that which is owed to you.

Evaluate your priorities: insurance over investment, long-term investment over short-term savings, buying a car vs. planning for a vacation abroad, etc.

Assess your skills for side hustles: if you’re good at something, use it for wealth creation.

Retooling Your Personal Finance

#2 Settle Debts

This step is as straightforward as can be: settle all debts at the earliest. That’s why we insisted in the previous step that you track your debts.

We get it that it’s difficult to have those awkward money conversations with people who owe us and are long overdue. But that’s the quickest and the least troublesome way for you to pay off those you borrowed from.

Settle Debts - advice about personal finance

Don’t feel offended to ask your borrowers for what’s rightfully yours, especially if you’ve honoured your end of the deal to wait out the agreed period for repayment. And in case you’re requesting it back sooner than the period agreed, it would help explain your personal financial predicament. Here’s how you can have the conversation politely.

To settle up lenders, re-examine your financial planning such that their repayment takes priority over your wants/luxuries. This also extends to clearing credit cards or loans.

When you receive a lump sum, clearing your credit card debt or making a part payment or full prepayment on your loan is always a better idea than to invest it or, worse, spend it. Given that credit cards and loans entail interest charges, your financial planning must prioritize clearing them before moving onto wealth creation.

#3 Talk to your Financial Advisor(s)

It could be the Relationship Manager at your bank, a friend who’s good at financial planning, or a financial consultant. This is not one of those situations where the more, the merrier. Restrict yourself to a few people who can share useful information on how to rejig your personal finance based on their experiences. Listen to these subject matter experts but make your own decisions based on your financial aspirations.

There are two benefits to these conversations:

  1. Broadening your financial understanding, thereby making wiser choices in retooling your personal finance.
  2. Finding tested and effective ways for wealth creation.
Talk to your Financial Advisor(s) - articles on personal finance

For starters, here are some aspects that you could discuss:

With your banker

o Upgrading to a Credit Card with more benefits and fewer charges. (Here’s a list of Credit Cards with no annual fee.)

o Tax saver/wealth creation plans offered

o Waiving off penalty for prepayment or part payment of loans

o Investment opportunities offered

With your financial expert friend/consultant

o Pros and cons of real estate investment. (How does real estate investment seem to be post-Covid? Check here.)

o New digital currencies in the market

o Traditional investment in gold vs investment in new currencies

o Stocks, mutual funds, SIPs

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Your business is your legacy. Your legacy can never have a substandard name. Learn how to create an identity that matters with these practical tips and tools. With steps to check Domain name availability and Trademark availability.

#4 Create Your Monthly Budget

When you’re done with steps 1 to 3, you will be better equipped to create a monthly budget. This is not to say that you cannot make a budget with a pending debt (when you owe someone).

Debt is unlikely to be a recurring factor and will not be considered in a stable plan. However, as discussed in step 2, your plan must be to settle debts sooner.

Another aspect that wouldn’t be directly considered in a monthly plan is accounting for your Health and Life insurance. These are two investments for your life and family that you need to make at any cost. This, combined, is the mother of all non-negotiable expenses.

Regardless of them being offered by your enterprise, you must invest in a health plan and a life insurance plan as they ease things for you and your family if at all things go awry.

If these investments need to be accounted for in your monthly budget, they must fall under the essentials/needs label.

The Golden Rule for Your Monthly Budget - foundations in personal finance

How to create the budget? You may use the Golden Rule (50:30:20), where 50 percent of the income is set aside for ‘non-negotiables/needs’, 30 percent for ‘wants’ and 20 percent for savings.

Listing every transaction being made under the various labels will help evaluate if your budget is optimized for wealth creation or not. With newfound clarity, you can then engage in retooling your personal finance more effectively. If you manage your household as well, then use this family budget planner.

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#5 Saving for the (Unpredictable) Future

The pandemic has taught us that we need to prepare economically for an unforeseen future. Opening a Fixed or Recurring Deposit account is alright but inefficient in the long run, and withdrawing it prematurely results in a loss.

Instead, set up an Emergency Fund.

An emergency fund is a safety cash net stashed away for a rainy day (or another pandemic!) yet is easily accessible. While health issues are one of the most common emergencies anticipated, it’s wiser to combat it with a robust health insurance plan than an emergency fund.

Saving for the (Unpredictable) Future - how can personal finance best be managed

In the event of uncertainty, this safety net fund can cater to your living expenses (your non-negotiable needs) for a brief period until you bounce back. This period of uncertainty is commonly marked as 4-6 months.

Even better, if your emergency fund can help you stay afloat for 12 months! So, your emergency fund should sustain your living expenses for those many months.

Note: It’s not your entire salary to be saved up; only what is non-negotiable for your living. Rest assured that this is a fund that can be built easily.

Check out this video to understand how to calculate your emergency fund and where to save it – savings account, cash, liquid mutual funds, etc.,

#6 Saving for Your Retirement

Retirement is an eventuality for most, including entrepreneurs. Due to age, health conditions, or just to live peacefully, you may want to retire sooner or later. With proper financial planning, you’ll be safe.

Saving for Your Retirement - how do you manage your personal finance

It would be advisable to plan the retirement fund after you have secured your Emergency Fund. But if your investments offer you the bandwidth to simultaneously set up your retirement fund, go for it! As it is with every other investment, the sooner you start, the better.

Evaluate your retirement readiness using a retirement calculator and choose one of the various plans available for retirement investment. Click here to do them both.

#7 Expanding Your Investments

Experts assert that owning gold is a great investment even now for your personal finance. However, today’s world is keen on investing beyond traditional gold, mutual funds, and real estate.

Small case investment is picking up in India. The interest in Cryptocurrencies and Non-Fungible Tokens is also on the rise. Stay informed on such trends for wealth creation.

Expanding Your Investments - how to do personal finance

The digital currency space is in the midst of a revolution, with so many cryptocurrencies on the block. You may want to understand more about them before you revamp your financial planning. If you are looking to invest safely in cryptocurrencies, do read this.

For those who know us, it’s time for a bonus step.

#Bonus Step: Sharpen the Ax

Like sharpening the ax is important to cut the trees efficiently; similarly, investing in yourself is a crucial step you must take for retooling your personal finance. This is an investment that comes with the greatest rewards.

The web can be your money magnet if used wisely! Be it undergoing a course, attending a webinar, completing a certification, or taking up a few gigs to build your expertise, do it for improving your returns!

Invest In Yourself - advice about personal finance

Here are a few minimum returns to expect:

✔ Developing your subject matter expertise

✔ Networking with peers and veterans who can help you down the line

✔ New business leads

✔ Opportunities for side hustles

✔ Improvement in personal branding

✔ Optimal use of your potential

The crux is that when you invest in yourself, it presents a myriad of opportunities for wealth creation.

Conclusion

As ABBA’s classic song Money, money, money goes, it’s a rich man’s (person’s) world. So, be prepared to mark your place with smart financial planning.

Hope this gives you a roadmap to retool your personal finance and help you in wealth creation in the long run.
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Tarashme

Tarashme

Tarashme is a blogging website for entrepreneurs. It provides practically useful content that helps them to accelerate their growth.

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