Most people will have some "assets", such as a property, cash, investments or a pension. And most people will consider these as "assets" since they are "real" and they belong to you.
Strangely, however, many people do not consider their "income" an asset.
This is strange, as this is probably your most important asset, and it can stop at a moments notice.
Therefore often overlooked, is the proper management of your income, or cash flow.
A properly managed cash flow will enable you to save and invest for yourself and your goals, avoid waste, and have money available when you need it or see an opportunity. Key to this is to allocate your income to various purposes in a disciplined manner.
We suggest the following categories in order of priority:
Medium Term Savings for Spending
Short Term Savings
This, as it suggests, is the fund that will provide your income in retirement. The first 10% of your pay goes in here every month, regardless. This money is never withdrawn or spent. It is only ever used to produce an income.
Medium Term Saving for spending
This is savings for expenses that you will incur in the future such as a new car, wedding for children, deposit for a second home and other similar priorities. The second 10% of your pay goes in here.
These are all the usual household bills and expenses such as the mortgage and property loans, utility bills, food and clothing and school fees. Contrary to what most people do, these should only be paid AFTER the retirement accout and medium term savings. And this should not exceed 55% of your income. If it does then perhaps this part of the budget should be reviewed with a view of trimming some expenses.
This is not only savings for things like education and university fees for children but also for self improvement for yourself. The next 10% after the necessities should go in here.
It is important that you get to enjoy your earnings, so the next 10% is reserved for you to relax and enjoy yourself. This can be for dinning out with your family or loved ones, sports and hobbies or a weekend away. This should be spent in the month in which it is earned.
Short Term Savings & Surplus
It is important not to spend all your money every month so this is kept as a buffer or emergency fund to cover unexpected expenses.
It may sound rather trite, but there is wisdom in the adage "Pay yourself first!" Every cash flow strategy should start with an allocation to your long term future, with everything else to follow. This is often the reverse of what many people do, which is to pay other people first and only after they have paid others, do they pay themselves.
If you would like to learn more about managing your income and expenses contact us here.
In order to determine the best solution for you, meet with one of our advisers, who will asses your current situation, or issue that you want addressed, and will construct an effective affordable solution specially tailored to fit your needs.