Getting Your Finances in Order

It is not often that I talk about personal finances, however, one year into the pandemic, many people have lost their jobs, are underemployed and have had their finances severely strained. I am not an expert in this area, however, through my own experience and through consulting and discussing with others who are more adept in this area, I have learned a few things about personal finance that I would like to pass on.

1) You must take stock of all of your assets and liabilities. Assets are anything that you own that is of monetary value, such as your house, other real estate or your investments. A liability is anything you own that does not have monetary value or depreciates over time. An example of this is a car. Most people need a car these days to get to work, do daily errands and to visit family and friends. However, a car is usually a liability because of how quickly it depreciates over and the cost involved in maintaining it over time. Any debts that you have, such as student loans or car loans, are also considered liabilities.

2) Determine the total value of your assets and your liabilities. If the value of your assets exceeds your liabilities then you are starting off in a good financial position. If the value of your liabilities exceeds your assets then you have some work to do.

3) If your liabilities exceed your assets, then you need to determine what you can do to decrease your liabilities, especially any debts that you have. You are paying interest on any debts that you carry, the longer you take to pay them off. You need to do whatever you can to pay off any debts you have as quickly as possible. This may involve paying a larger amount to the principle of your debt, instead of making your usual monthly payment, which can help pay off your debt faster.  Even if it is only a small amount, it will still help to alleviate that debt over time. If you own several vehicles, then ask yourself, do you really need them? Can your family manage with one vehicle and using public transit? Only you can answer this question but you must do this for everything that you own, that is a liability, and determine whether you truly need it, and if the answer is no, get rid of it.

4) In order to pay off debt, you need to have some source of income.If you have lost your job or are underemployed then you need to do several things immediately. The first thing is to determine where in your life you have unnecessary expenses and cut them out. For example, if you are unemployed, then it may not make sense to eat outside or to get takeout food four times per week. You should, instead, be making your meals at home, which tends to be less expensive than eating out. You need to scrutinize all of your expenses to see where you can decrease or eliminate unnecessary expenditures.

5) If you are unemployed, you need to be willing to do whatever work is available until you find your ideal job. The fact is that, at any given time, there are hundreds of jobs available, especially if you live in a large urban area. You need to do your research through the internet, print media and reaching out to your social network to find what work is available that you could potentially do. It does not have to be your ideal job but just something to start bringing in some cash flow until you are able to find something that you truly enjoy. You may even have to do odd jobs until you find something more permanent.

6) Once you have a source of income coming in, you need to pay yourself first. After you have put some money towards any debts that you carry, you then need to be putting at least 10% of your income into a savings account before you pay any of your expenses of daily living. If you do not do this before paying your expenses, you will never get into the habit of saving money and growing your wealth. This is a habit which is not intuitive to most but needs to be cultivated.

7) Once you have a steady flow of income coming into a savings account and are well on your way to paying down your debts, you need to invest that money. Investing is how your wealth grows over time. What type of investments you engage in will depends on how much money you have, your knowledge of investing and your risk tolerance but there are many ways you can invest your money including indexed funds, mutual funds, individual stocks and bonds and real estate. Before you start investing, I suggest that you educate yourself thoroughly. A good place to start is the following link, however, there are many other sources of financial knowledge.

Although everyone’s financial journey will be different, depending on their unique situation, what I have outlined above are fundamental principles, which will help get your finances on track, no matter what your financial situation is now. This is more important now than it has ever been with the economic fallout of the pandemic, which no part of the world is immune from.

Dr. Nauman Naeem


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