Spend wisely to achieve your financial goals
What you need to know:
- At the heart of any financial plan is the allocation of income towards maintaining the family subsistence.
- Out of the possible eight key elements of the financial plan, spending is the most critical to manage.
A personal finance plan has several components, but some elements must be taken care of for the others to be realised.
A key part of the reason people go to work or invest to create income is to sustain a certain lifestyle.
Incidentally, the lifestyle is not static. It changes just as quickly as one’s mind, as the income increase.
At the heart of any financial plan is the allocation of income towards maintaining the family subsistence.
Simply put, this the equivalent of funds a family needs every month for food, clothing, medical and housing rent.
The six elements of financial goals are conjoined by the balance between income and the expenses being the only source of surplus required for growth by many households.
Out of the possible eight key elements of the financial plan, spending is the most critical to manage because it can potentially take away the funds needed for other elements of the financial plan if the budget controller is weak at taking hard decisions.
SUBSISTENCE BORROWING
Where the budget controller fails to control spending, borrowing for short-term consumer needs is the first to arrive at the scene.
A series of small subsistence borrowing usually taken to sustain a “false” family lifestyle takes root as income is eroded by gradual, unnoticed increases in key expenses such as rent.
As the family grows in head count and age, certain needs grow exponentially.
Upon arrival of the first baby, a family will almost always afford the needs of the baby comfortably. But the needs are increasing.
Children need new clothes which are more expensive, new bedding, new toys and totally different classes of food.
In the meantime, a house help becomes permanent expense. Let us not forget that we are living in an age where every service our parents used to do for themselves such as cooking, washing clothes, brushing shoes and so on are now procured from third parties for a fee.
To manage the family expenses account, the couple must take a long-term view of their life, agree on certain plans and implement.
This intentional position directs funds to the projects where they are needed most at the expense of regular consumption.
Financial planning is about self-discipline.
— Patrick Wameyo is a financial literacy educator and coach.
