Five Numbers Everyone Needs To Know
Working a job, getting paid, and saving part of that pay isn’t all that you need to know about your financial situation. You’ll need your salary (or profits) to sustain you even in the case of emergencies, or after you retire, so here are five numbers you should always be aware of when managing your finances.
1. How Much Money Is Coming In
This may seem a really basic one but in actual fact many people don’t know their households’ exact earnings. This is especially true for shared households, or when only one of the partners works.
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Regardless of who is making what, everyone within a household should be made aware of how much money is coming in, and also able to provide the amount if required.
2. What Your Monthly Expenses Are
Any business owner should know how much it costs to keep the business afloat, and it’s the same for personal finances. You need to know the costs for your family to live on. If you have no idea on what the amount is, or your answer is “somewhere around RMxxxx” then you need to sit down and work out the exact figure.
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The amount should include everything such as utility bills, loan payments, credit card and mortgage debts. This figure should be something you are actively controlling to ensure it’s always less than “How Much Money Is Coming In”.
3. How Much And How Long You Need To Reach Your Goal
If you don’t have any goals, or don’t know what goals you should have then you should probably work on that first. Your goals may include completing a doctorate, pay off your study loans within 5 years, buy a property in 2 years’ time or save enough money for a overseas vacation.
Once your goal has been set, the next step is to calculate how much it will cost and the time you need to save up the said amount. In short, you need to come up with an accurate figure and a realistic date.
4. How Much That Looks Like Now
Once you know the required amount to achieve your goal, break it down to a monthly amount, or according to how often you are paid. With this information at hand, you will be able to determine whether the amount is feasible.
5. How Much Your Targeted Cash Balance Is
This is the ideal allocation of cash in a specific situation in your financial timeline. As an individual, life gets in the way and sets you back in your savings goal. It may be due to your car requiring a major repair, or when an unexpected illness strikes.
To ensure you’re on track despite these rocky times, you need to set aside targeted amounts according to your age.
Ideally, you should have three “buckets” – short, intermediate and long term funds:
- The first bucket: short term money that’s available for an emergency.
- The intermediate bucket should be used for household expenditures (new car, home maintenance, college funds) that are five to seven years away.
- The long term fund should be for the family’s retirement and considered off-limits for any short-term expenditures, unless really necessary.
As with many other things in life, prudent planning will get you far. Think ahead and beyond the next decade so that you’ll be as financially secure as possible.