From the ideal way to create a budget to the importance of taking part in a microfinance program, read on for the most effective ways you can improve your finances by the end of the year.
1. Create a budget and stick to it.
No matter who you are or what your financial state, you can always benefit from creating (or updating) your budget. Having a budget is crucial if you are going to boost your financial future. In your budget, you should plan how you spend your money based on your income and saving goals. Rather than thinking of your budget as a restrictive obstacle to your happiness, consider it a tool for achieving your financial goals.
To create a budget, you are first and foremost going to write down your income and fixed expenses (rent/mortgage, utilities, insurance, transportation, etc.). Additionally, you can include any other amounts that are generally the same amount each month. If you plan to save a certain amount or pay off a fixed amount of debt each month, this should also be included in your fixed expenses. From there, you can subtract these fixed expenses from your income to ascertain how much you have left over for discretionary spending.
Variable expenses are those that change from one month to the other, such as groceries, gas, dining out, gifts, etc. These expenditures will likely vary over time as you move around your budget. However, in the beginning, you will need to estimate how much you have to spend on variable expenses. If you aren’t sure, start by going through your last few card statements to get a rough estimate.
Particularly in the beginning, it is crucial to modify your budget as you continue to monitor your expenses. If you find you are overestimating or underestimating your costs, work to change the numbers around. Moreover, once your expenses are lower than your income, look to move your remaining money towards your savings goals instead of increasing your spending.
2. Make a debt pay-off plan.
In addition to making (and sticking) to a budget, the next most important thing you need to do if you are carrying debt is to create a debt pay-off plan. This is particularly crucial if you currently have high-interest credit card debt, as this is one of the most expensive mistakes you can make. The sooner you can pay off your debt, the quicker you can transform your
To get on top of your debt, you first need to know how much you have. To figure this out, start by listing all your current debt (including credit card, student loans, other loans, etc.) and then calculate the minimum amount you have to pay to each one to remain current. Keep in mind that if you are just paying the minimum amount, you are not going to be able to
get out of debt quickly; therefore, you need to look for ways to be putting more money towards debt repayment each month.
For many individuals, it is highly recommended that you look to reduce your debt’s interest rate by requesting a lower rate, consolidating your debts, or transferring your balance to a lower-interest solution. Doing one of these things can help to reduce the amount of interest you need to pay significantly. From there, you can work out a debt payment plan and then seek to formulate spending habits to pay off the debt ASAP.
3. Take out a personal loan.
There are plenty of reasons why taking out a personal loan is highly recommended. For example, if you are looking to consolidate debt or fund an extensive renovation project, then taking out a personal loan may be ideal. When you take out a personal loan in Saudi Arabia (or wherever you reside), then you can use the money for large purchases, emergency expenses, debt consolidation, and much more.
Once you have been approved for a personal loan, you will receive the funds into your bank account in a lump sum. Depending on the lender, you may have the money within days. After you have received the loan, you will start making monthly payments. Usually, these installments last a minimum of two years. In most cases, personal loans have fixed interest rates, meaning the amount will remain the same each month.
Another option is a microfinance program, such as the one offered by Emkan FInance, for example. No matter what sector you are working in, this service provides all employees with finance solutions that satisfy their needs easily and quickly. As long as you are a Saudi employee in the government / semi-government / private sector and your minimum monthly salary is SAR 2,000 (for retirees, SAR 1,900 per month), you can participate in this microfinance program.
A sponsor is not required to obtain a loan from EMKAN, and all products are compliant with Islamic sharia. Keep in mind that EMKAN currently only offers personal finance solutions, which are ideal for those looking to consolidate debt, conduct a sizable home improvement project, fund emergency expenses, and the like.
4. Start investing.
If you are new to the world of investing, it is understandable to be overwhelmed by it; however, there is no better way to make money than through investments. After all, you can either make money by actively working for it or earning it passively. As an investor, you can earn money while you sleep – and while you are actively earning money doing something else.
Investing can come in the form of stocks, bonds, mutual funds, real estate, and other financial instruments. If you are a beginner, you generally want to start by investing in stocks. Given that the long-term average annual return of the stock market is around 7%, investing in the stock market is a fantastic method for the average person to increase their wealth over time.
That being said, the right kind of investment strategy for you is going to depend on what kind of investor you are. In other words, some people are more risk-averse while others are okay with taking more chances. If you aren’t sure how to begin, consider enrolling in a class to learn the basics, read some books on personal finance, and meet with a financial advisor who can help you get on the right path.
There is no denying that being an investor comes with risks; however, if you are able to invest consistently and you have patience, your money has the potential to grow (significantly) over time.
There is nothing more important than getting your financial life under control. Taking the time to get up-to-date on where your money stands before making a plan of action for the future is essential if you are going to improve your finances by the end of the year.
What steps are you going to take over the next few months to enhance your financial situation? Let us know your plans and any other important tips you have in the comments below!
Saud Al Ghonaim is the CEO of Emkan Finance, a leading Saudi omni-channel FinTech brand offering innovative financing solutions such as micro, top-up, and installment financing to a wide range of audiences. He holds an MBA in Finance from the University of Akron and has 21 years of experience in a wide spectrum of retail banking, consumer finance, credit & risk management, products, development, sales management, and consumer finance operations.