Here’s three tips each for organising your personal finances whether you’re a salary earner or a business owner plus a bonus tip for all individuals. ????
For salary earners
Create a payday routine
You must know your fixed expenses when you’re earning a salary. Create a routine that gives you time on payday to make payments for debt (if they are not already on debit order), check that your scheduled payments have gone off as they should and that you have funds allocated for the necessities that will be required during the month to carry you till your next pay check. Always check your payslip and make sure that you have been paid correctly.
Automate your savings
As the famous money mogul Warren Buffet once said “Do not save what is left after spending, spend what is left after saving”. Have a few saving goals, one for retirement (if your employer does not offer such benefits), one for medium term and one as an emergency float. You may not be able to allocate funds to each of these from your salary if you’re starting out, but starting is the key. Setup scheduled transfers or repeat payments to go off on or the day after payday, so that money isn’t sitting in your bank account idle.
Make a plan to manage debt
Most money-gurus out there will tell you not to take on debt, but debt is good when used to buy an asset. For example, in South Africa, you cannot buy a house cash whilst earning a salary (unless you win the lottery ????) You will need to take out a home loan to buy your house/flat. But, if you manage the repayments well, you could pay it off in half the time!
When tackling debt, aim to pay off the highest interest rate loans/debt. Then tackle the ones that do not charge you high interest. Some of our clothing stores offer six-months interest free facilities. Use those to your advantage and never pay them off early unless you have surplus funds.
Always remember that it is useless saving a lot of money whilst having a lot of debt. Debt is usually more expensive than the rate of interest paid out by investments. As a result, your savings don’t benefit you in the long run and you find yourself in a worse off position. Pay off the debt as much as possible while starting to save.
For business owners
Track your expenses and stick to a personal budget
If you’re like the majority of small business owners, keeping your personal and business expenses separate is a challenge! Start by having separate bank accounts for yourself and your business. Move personal and business debit orders to the relevant accounts. If you’re like me, I have some business expenses that I have coming off my personal account. I then refund the exact amount from the business to my personal account. That way I can trace business expenses and reimburse myself for business expenses I incur off my personal funds. Hand-write a personal budget if you have to and stick to it. Pay yourself a salary and make sure you increase it yearly as you would for your staff. This way you have a funds off which to pay your personal expenses.
Go paperless
Gone are the days when keeping receipts in a flip file or arch level file by month was the craze! ????????♀️ there are so many online tools out there that can help you organise your paperwork. Tools like Trello, Google Notes, Evernote, allow you to take pictures of your receipts or attach files to your notes. The best thing about it is you can access them anytime and anywhere and even share them with your accountant when it comes to personal tax time!
Separate Discretionary spending
As a business owner, you may access to additional income via dividends, etc. Instead of having these paid into your personal cheque account, have it paid into another savings/investment account. This can be for those “nice-to-haves” or “family holiday” money. This way, you are able to manage your personal day-to-day expenses while also growing a little kitty of your own to have fun or do important things with.
For all individuals
Apply the 50-30-20 rule
Use this rule to allocate your personal income after taxes into 50% for necessities, 30% for the “nice-to-haves” and 20% for reducing debt and saving.
I am the first to admit that not everyone will get this right and depending on your income, these percentages may not work. Another apportionment is I have seen is the 40-30-30 split – 40% for necessities, 30% for savings and investments and 30% to reduce debt.
If you’re a business owner and you pay yourself lump sums every now and then, speak to your accountant regularly to establish how much tax you should be setting aside.
It can come as a nasty surprise when you’re presented with a tax bill of 30-40% of the lump sum income you paid yourself and there’s no tax savings to pay for it!
Once you know what your income is, assess your fixed expenses and try to manage them within the 40-50% bracket.
Do you feel inspired to get your personal finances organised? We hope you do! And if you need any guidance with your personal taxes, get in touch with us here.
