6 Back-to-Basics Steps to Take Charge of Your Personal Finances
By Helwa Sofni Md Isa
Taking charge of your personal finances is simple with these steps, regardless of your gender and situation.
Enough is enough. Your personal finances (whether individual or household) is messy and nobody is truly aware of what is going on anymore. Maybe you’ve never taken stock of it before, maybe one of you has done it before but didn’t maintain it properly, or maybe you’ve just started out and have to start from scratch. No matter which you are, you want to take charge now.
Before we begin, let’s talk about whether gender matters when it comes to taking charge of personal finances. In Malaysia, it’s a common cultural expectation among the older generation that men are the breadwinners and also the money managers. It’s a heavy burden on men to focus on growing income and watching expenses like a hawk. Why just men? Women can certainly do just as much in the realm of personal finances as well!
Don’t believe us that women are good enough? Here’s some data to open your eyes. According to Department of Statistics Malaysia (DOSM), women participation in the workforce was at 55.8% in Quarter 1 2020 compared to 45.5% in 2010. This shows that Malaysian women are increasing their earning power. Wouldn’t it also make sense that women can also take charge of personal finances?
Regardless which gender you are, the topic of personal finances is relevant because it is your own money and you need to learn to handle it. No more laying blame on your spouse or your parents for not giving you enough, for not controlling your spending, for not teaching you what to do, etc. Welcome to adulthood. The good news is that it’s simple to get back on track with taking charge of your personal finances.
Get ready to be more involved. Get ready to take charge. Let’s look at these back-to-basics and learn!
#1. Organize – Knowing Where Everything is
“Did you know that research says we spend up to six years of our lives looking for things? Getting organised is a totally doable dream” – IKEA
IKEA sells us the ideal state of every home, which is to be well-organized. When everything is in the right place, we reduce clutter, therefore appearances are neater, we know where to find everything, and overall leads to less stress for ourselves when we’re in a rush.
Day- to-day, we deal with a lot of documents, bills, records, bank or loan statements. These can be in the hardcopy form or in the digital form but regardless, it is important that we keep them properly organised, e.g. in clearly labeled folders. Examples of documents to keep organized include:
Any other form of ownership agreement, e.g. gold certificates, FD certificates
Loan (debt) agreements
Regularly remind your household where you have organized all these documents. Go over them together once in a while. Let them be familiar with your system. After all, these are paperwork are important to them too.
This habit is extremely important to have already in place when a sudden event occurs that such as death, accident or illnesses. That way, nobody is scrambling to find things but instead can quickly grab the necessary items and keep your sanity for focusing on your loved ones.
#2. Track – Keeping an Eye on Your Money Movements
You need to know where you money is coming from and where it is going to. If you are serious about taking charge of your personal finances, then it’s necessary to get used to tracking every sen. This step allows you to keep track your money movements better as well as facilitate your budgeting process.
This can be as simple as opting for cashless transaction when paying your bills. Not only it is easy and save time (time is money), indirectly it provides you a good record for your future reference.
You can also have different bank accounts for different purpose. For example you have one bank account for your salary and monthly expenses and another bank account for rental income and its related expenses.
The ultimate reason for having a system is so you can keep an eye on your cash flow which is the heart of your money or wealth management. One must have record of the inflows whether they are fixed, variable, active or passive. As expenses may involve many line items, it is recommended that you group them according to their category. This could be kids related expenses, home expenses, financing commitment or for your leisure activities and hobbies. There are plenty of apps currently available to help you manage your record or it can be the traditional excel application for easy computation.
Your system doesn’t have to be perfect from Day 1. Give yourself a few rounds to adjust it. Then, get into the habit of daily expense tracking, thoroughly making use of your overall system that works with your expense tracking, and regularly check to make sure you’ve not missed out anything.
#3. Assessing – Collecting & Understanding Personal Financial Data
In personal financial management, 3 main records are:
Cash flow: As the name suggests, knowing your money coming in (income), and the money going out (spending).
Asset listing: This is about what you have with the attached value. From your saving accounts, investments, properties, gold, jewelries to your insurance policies. All of these must be recorded properly.
Liabilities/Debt: The amount you owe, either to any institutions, income tax or to any persons must also be recorded properly and accurately.
You cannot say you want to focus on only 1 or 2 of the 3 main records listed. It is necessary you must take charge of all 3. Chances are that you have already seen to most of them if you have been following our previous steps outlined in #1 and #2. Take a few minutes to think what have you missed out, jot them down, and work them into your system crafted in #1 and #2.
Next, you probably may already notice this, but take a moment to see how these 3 main records fit together like a jigsaw puzzle.
Your liabilities/debt is what you owe others. Your objective and priority in personal finance management is to clear debt.
You don’t own that house/car/dress until you clear your loan and credit card bill, else it’s the banks that own them even if you live there or wear it.
2. Your assets are your accumulated wealth. Your objective is to gradually increase this so you can have a comfortable life, use them to pursue your life goals, and eventually leave a reasonable legacy for your family.
3. Your cash flow is how you use your income and expenses to reduce your liabilities/debt while gradually increasing your assets.
By understanding how they jigsaw together, you can also understand the importance and value of making sure you properly track and maintain these 3 main records. But wait, there’s more.
You next need to come up with a plan to address the urgency of matters. Once you have the 3 main records, you need consider future planning on how you want to intentionally make positive changes.
For example, ignoring debt repayment can lead to potential financial loss eg penalty of late payment, higher interest rate and risk of your property being auction under extreme case. Therefore, say you are now committed to paying off monthly repayments, but your current monthly income and expenses don’t leave you enough to do so. Then, you need to assess your expenses and see what you can trim. Else, look at your income and think of ways to increase your income either in amount or multiple income streams. This brings us to the next step!
#4. Onboarding – Discuss, Review, Reflect as a Family
After steps #1, #2, and #3 are in hand, it’s time to discuss your findings. Talk it over with your spouse, your family, and maybe even have some internal dialogues with yourself. Review the data, reflect your financial situation, talk about what your dreams/goals are for the future (e.g. retirement, vacation, education, financial freedom), and think about what you can do now to get the ball rolling towards that dream.
You can prioritize what is important and only keep or work on what you and your family values. Discarding on what is less valuable is an important part of the process because it provides opportunity to learn from your past experiences. This process allows you to avoid repeating the same mistakes or waste which in turn can save your money in a long run!
Another important aspect here also is about expectation setting. If you and your partner have a clear communication on this, it can help in prospering your relationships too. Remember, all you need to do is to have transparent, sincere and consistent discussions and take into consideration the changes that happened along the way.
“Having that same curiosity that you would have on a first date would be helpful” – Kathleen Burns Kingsbury, Wealth Psychology Expert at KBK Wealth Connection
“Discard everything that does not spark joy” – Marie Kondo
#5. Support – Recognizing Who You Should Count On
Ask yourself, who are your next important person after your family and parents. They could be your siblings, friends, neighbours or even your helper. It can be any or all of them.
What matters most are the relationships that you form with them. During crisis or an unexpected events, having a good support system can mitigate the impact to your financial state. In other word, this is your risk management aspect. It takes beyond money to address this. Perhaps the pandemic situation that we are dealing today has taught us better about this. Support system is required to keep our overall wellbeing healthier. Having a trusted and dependable persons surrounding us is priceless.
#6. Praise Your Finances
This is the last step to conclude all the earlier efforts that you have taken. There is always something to celebrate. What you cannot forget is the tiny everyday victory. In other word, “what you appreciate, appreciates”. It means (1) open your eyes and become aware of it; (2) hold it in high regard; and (3) be deeply grateful for the joy it brings you.
Regardless where you are at this point of time about your finances, start doing it is the key. This is because knowing and doing are two different things. If you can understand why you made decisions with a little of financial awareness, not only you protect yourself but also the one that you love most.
All you need is to start believing that with the right mindset and sound knowledge, women are beyond capable in managing their personal finances other than family, fashion and profession. If you are a fan of Marie Kondo, who is famous with her KondoMari method in organising, you can apply the same concept; Tidy-Valuable-Spark the joy”, even with your own finances. Enjoying the process is the key.
Consider to speak to the financial expert like a Licensed Financial Planner if you need further help. It can save your time too!
So, are you ready to step up and be more confident in managing your personal finances?
About the Author: Helwa Sofni Md Isa
Helwa Sofni has more than a decade of experience as a Chartered Accountant and held many positions in corporate sector before venturing herself as a Licensed Financial Planner with one of the top leading financial advisory in Malaysia, Wealth Vantage Advisory Sdn. Bhd. This mother of three who resides in Negeri Sembilan, is also a certified Islamic Financial Planner. She truly believes that financial literacy is crucial for everyone in order to live life confidently and peacefully while pursuing one's dreams.