The world has witnessed the outbreak of coronavirus and how it soon was declared a pandemic by the WHO. Many countries, including the UK, announced lockdown in the country to curb this virus’s spread. As an outcome of this, there was a substantial economic impact on the country. On a micro-level, many people lost their jobs.
Fortunately, many direct lenders in the UK offer loans for bad credit with no guarantor and on benefits. Getting money in an emergency is a one-time option, but it cannot be replicated every time you are short of funds.
This is where the aspect of personal finance and planning kicks in. Do you know what Alpha and beta in finance? It helps an individual to plan his finances efficiently to sail through the crisis. These loans you can take, but they come at a cost. The interest rate on these loans is significantly higher. Thus, it is better to manage your money always to have some savings to fall back on.
This blog will introduce you to some of the innovative ways of managing money. You can implement these time tested strategies to plan your personal finances. Here it goes:
Create an Emergency Fund:
The foremost thing you should do after receiving your salary is that remove a fixed portion from it to create an emergency fund. This is the primary lesson learnt from this pandemic: to have a safety net for unforeseen circumstances.
These circumstances could be losing your job, going through a pay cut, a medical emergency, etc. demanding cash outflow. Thus, it is advisable by many financial planners to create an emergency fund before doing anything else.
Prudent Spending:
This is one area where you can show fiscal prudence and cut back on your expenses, which do not create any value. Why take no guarantor loans with instant decision to fund any lavish purchase? When you can live without it, then why waste money? To spend money wisely, learn to differentiate between ‘Needs’ and ‘Wants.’
Needs are the necessities that are essential for survival like food, shelter, etc. Wants are expensive watches, the latest smartphones, etc. Instead, you can compromise on your wishes and buy a cheaper version to serve the purpose and save money.
Start by canceling all the subscriptions you don’t use, buy a more affordable internet plan.
Become Debt Free:
On a priority basis, this should be repaying the debt you owe to people, to banks, to anyone. You should realize the cost of borrowing. The interest amount you pay in monthly instalments is enormous.
Go for a one-time settlement if it is a small loan and finish it. You can save a lot of money if you don’t have to pay any instalment on the debt you have incurred. This debt includes your credit cards as well, as the banks charge exorbitantly high-interest rates even if you default by a day.
Warren Buffett, the legendary investor of all-time, once said in the AGM, “Avoid using a credit card and never spend more than you earn.”
Second Source of Income
You should look for a second source of income when you are young and can work extra. It could be home tuitions, freelance work, data entry jobs, content writing, part-time jobs, etc. This income also could be in the form of rental income from your tenants or rent from a commercial space you’ve given on leasing.
Buy a property at a strategic location and rent it out to get constant cash flow. The point is the more income you can earn, the better living standards you can afford.
Invest
Investing your savings in interest-bearing assets fetch you handsome returns based on the asset class. You can choose to invest in any asset class, depending on your risk appetite.
If you are risk-averse, prefer putting your money in cash, bank deposits, term deposits, or government bonds (treasury bills). If you are a risk-taker, invest in asset classes like equity, real estate, commodities, commercial papers, etc. The rule, according to theory, is the higher the risk, the higher the returns.
Start with a time horizon and prefer investing in the long term as the compounding effect works only in the long term in mutual funds and stocks. Start investing at an early stage and do the asset allocation wisely.
Make a Budget
You now know the difference between need and wants and cut back on your needless expenditures. It is time to make a budget. Write the total income (including your second income) at the top and subtract all the necessary expenses from it.
Now, deduct additional expenses which you are expecting to get the final savings amount. This amount should ideally be 10-15% of your total income. Save this amount and invest it in different asset classes to generate returns out of it.
Follow this budget strictly and keep making changes from time to time as per your prevailing salary and liabilities.
