Personal financial management is something that is not taught in many schools, but is something that almost everyone has to deal with in life. According to one study, 58 percent of Americans do not have a savings and investment plan for the afterlife. The average American saves only ten percent of the amount they need to support their life after retirement. The average credit card debt in America is around fifteen thousand dollars. If you're surprised by any of these things, and don't want them to happen to you, read on through this article for specific guidelines aimed at giving you a better future.
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Method 1 of 4: Creating a Fund Budget
Step 1. For one month, keep track of all your expenses
You don't have to limit yourself; You just need to know how much money you spent during a given month. Keep all receipts, keep track of how much cash you need and how much your credit card spends, and find out how much money you have left at the end of the month.
Step 2. After the first month, record how much you spent
Don't write down your expected expenses; write down your real expenses. Categorize your purchases in a way that makes sense. A simple list of your monthly expenses could look like this:
- Monthly income: Rp. 3,000,000
- Expenditure:
- Rent/installment of house: Rp. 500,000
- Monthly bill (electricity/water/garbage) Rp. 250,000
- Foodstuffs: Rp. 650,000
- Eating out: Rp. 200,000
- Gasoline: Rp. 400,000
- Treatment: Rp. 300,000
- Others: Rp. 100,000
- Savings: Rp. 500,000
Step 3. Now, write down your actual budget
Based on the month of spending – and your knowledge of your spending history – estimate how much of your income you want to allocate each month. If you prefer, you can use budgeting software, such as Mint.com, to help manage your budget.
- In your budget, create columns for estimated and actual expenses. The estimated budget contains your planned spending on a category; it should stay the same from month to month and be calculated at the beginning of the month. Your real budget is the amount you end up spending; the amount will change from month to month and is calculated at the end of the month.
- Many people leave a large budget for savings. You don't have to plan your budget to include savings, but it's generally a good move. Professional financial planners usually advise their clients to budget at least 10 percent to 15 percent of their income for savings.
Step 4. Be honest with yourself about your budget
It's your money – it doesn't make sense to have to lie to yourself about how much you're going to spend when you budget. The only person to lose because of this is yourself. On the other hand, if you don't know how you're spending your money, it may take you a few months to set your budget. For that time, don't set a number until you can be realistic with yourself.
For example, if you allocate Rp. 500,000 to save each month, but know that it will be difficult to do, don't write it down. Use realistic numbers. Then, review your budget and see if you can rearrange it to reduce your spending and increase your savings
Step 5. Monitor your budget from time to time
The tricky part about setting a budget is that your expenses can change from month to month. The best part about a fund budget is that you can monitor the changes, giving you an accurate picture of where your money is going over the course of a year.
- Setting a budget will open your eyes to how much you are spending. Many people, after setting a budget, realize that they are spending a lot of money on unimportant things. This knowledge allows them to adjust their spending habits and use their money for more useful things.
- Plan for the unexpected. Setting a budget will also teach you that you will have to spend money on the unexpected – but you can prepare for it. Of course you don't plan to damage your car, or your child needs treatment, but you do need to plan for things like this so that you are financially prepared when you do.
Method 2 of 4: Spend Your Money Right
Step 1. When you can borrow/rent, don't buy
How often do you buy a DVD only to leave it dusty for years without ever being used? Books, magazines, DVDs, tools, party supplies. and sports equipment can be rented for a lower price. Often, renting can help reduce your expenses, save storage space, and generally make you take better care of things.
Don't just rent. If you use an item for a long period of time, you should buy it. Do a simple price analysis to see which option is the best for you
Step 2. If you have the money, pay a high down payment on your mortgage
For many people, buying a house is the most expensive and significant expenditure of their lives. For this reason, you should manage your home mortgage wisely. Your goal in paying the mortgage is to minimize interest and costs and balance it with the rest of your budget.
- Make a prepayment. The first seven-year house installments usually have the highest interest rates. If you can, use some of the money for income tax payments to pay off your mortgage. Paying up front will help increase your equity quickly by lowering interest payments.
- Find out if you can make payments every two weeks instead of every month. Instead of making 12 payments on your mortgage each year, find out if you can make 26 payments on your mortgage. This will help you to save millions of rupiah, provided there are no costs associated with it. Some lenders charge a hefty fee for you to do so, and sometimes they only charge once a month.
- Talk to lenders about refinancing. If you can refinance your loan from, say, 6.7 percent to 5.7 percent, for the same amount of payments, take that opportunity. You can pay off your mortgage a few years early.
Step 3. Be aware that having a credit card may be essential for obtaining a loan
A credit score of 750 or higher will probably provide lower interest rates and the opportunity to get a new loan – something that should not be taken lightly. Even if you rarely use a credit card, you should still have one. If you don't believe in yourself, lock your credit cards in your desk drawer.
- Treat your credit card like cash – that's the truth. Some people treat their credit cards like an unlimited source of funds, making purchases they can't afford and only paying the minimum monthly payment amount. If you plan to do this, be prepared to spend a lot of money on interest and fees.
- Limit your use of credit. Low credit usage means that the proportion of your debt is low compared to your credit limit. For example, you have a limit of Rp. 10,000,000 but you only use Rp. 1,000,000, your debt ratio is very low, only 1:10. If your limit is only IDR 2,000,000 but your usage is IDR 1,000,000, your debt ratio is very high, which is 1:2.
Step 4. Spend what you have, not what you expect to get
You may think of yourself as having a large income, but if your money says otherwise, this is tantamount to a suicide attempt. Rule first and most important of spending money is to only spend the money you have, not what you expect to get, except in an emergency. This will save you from debt in the future.
Method 3 of 4: Invest Smartly
Step 1. Get to know the different investment options
As we grow older, we realize that the financial world is much more complicated than we imagined as a child. There are many options for exchanging imaginary items; You can bet on things that haven't happened, you can buy stocks, etc. The more you know about financial instruments and their possibilities, the better you will be at your investment ability, even if sometimes it's just to know when to stop.
Step 2. Take advantage of the retirement plans offered by your company
Often employees can opt for a 401(k) retirement plan. Under this plan, a portion of your salary will be automatically transferred to retirement savings. This is a good way of saving, because payments are taken from salary before it is deducted; most people are never even aware of these payments.
Talk to your company's HR representative about your company's policies. Some large companies with profitable retirement plans will put as much money as you put in your 401(k) account, doubling your investment. So if you put Rp. 1,000,000 from your salary, your company will probably give you Rp. 1,000,000 more, so you invest Rp. 2,000,000 every time you receive a salary
Step 3. If you plan to play stock, don't gamble
Many people try day trading in the stock market, risking small profits and losses each day. While this may be an effective method for experienced people, it is very risky, and is more like gambling than investing. If you want to make a safe investment in the stock market, invest for the long term. Therefore, you should invest for the next 10, 20, 30 years or more.
- Learn the company basics (how much money they have, product history, how they value employees, and their strategic partnerships) when choosing stocks to invest in. Basically you are betting that the current stock price of a company will rise in the future.
- For safer betting, consider purchasing a mutual fund product. A mutual fund is a group of stocks that are combined to minimize risk. It's as simple as this: if you invest all your money in one stock and the price of that stock falls, you're in for a big loss; if you invest all your money equally in 100 different stocks, the fall of some stocks will not affect your investment too much. This is a mutual fund's way of mitigating risk.
Step 4. Find good insurance
Smart people are always prepared for the unexpected, and have a plan in case it does happen. You never know when you will need a lot of money in an emergency. Having the right insurance can help you get through a crisis. Talk to your family about the types of insurance you can buy to help you during an emergency:
- Life insurance (to prepare if you or your spouse dies suddenly)
- Health insurance (to prepare in case you have to pay unexpected medical expenses)
- Homeownership insurance (to prepare in case something bad happens to your home)
- Disaster insurance (to prepare in case of hurricane, earthquake, flood, fire, etc.)
Step 5. Think about setting up a DPLK (Financial Institution Pension Fund)
In addition to BPJS Old Age Security (JHT), which is usually largely determined by the amount of your monthly salary, try contacting a financial advisor and discuss the possibility of setting up a DPLK. This pension fund allows you to invest a certain amount of funds and then withdraw it after you are, for example, 60 years old.
- DPLK is sometimes invested in securities, stocks, bonds, mutual funds, and annuities that allow these funds to grow substantially over the years. If you invest funds in DPLK early on, the compound interest generated (interest bearing interest) can make your investment grow significantly over time.
- Discuss income insurance products with insurance agents. This type of planning allows you to get retirement funds every year without stopping for life. Sometimes, these insurance payments will continue to pass on to your spouse after you pass away.
Method 4 of 4: Start Saving
Step 1. Start by saving as much of your income as possible
Prioritize saving in your life. Even if your budget is small, organize your finances in such a way that you can save about 10 percent of your total income.
- Think about it: If you can save IDR 30,000,000 per year – which means less than IDR 3,000,000 per month – in 15 years, you will have IDR 450,000,000. Enough to pay for your child's college, start an investment, or to pay a sizable down payment on a house.
- Start saving when you are young. Even if you're still in school, saving is still important. People who save properly treat it like an ethic rather than a necessity. If you save from the start, and then invest your savings wisely, small contributions can build up into big sums.
Step 2. Create an account for an emergency fund
The essence of saving is sharing disposable income. Having a disposable income requires you to be debt free. Not having debt is the same as requiring you to prepare funds for emergencies. Therefore, an emergency fund can really help you in saving.
- Think about this: suppose your car breaks down and you suddenly have to spend Rp. 20,000,000. You didn't plan it, so you had to take out a loan. The interest rate you get may be quite high. As a result, you have to pay 6 or 7 percent interest on the loan, which means you can't save for the next six months.
If you have an emergency fund, you can avoid taking on debt and interest. This will be very useful for you
Step 3. When you start saving for your retirement and emergency fund, save as much as you need for three to six months
Back again, saving is preparing for things that are uncertain. If you suddenly experience layoffs, or the company reduces your commissions, you don't want to go into debt just to survive. Saving savings for the needs of three, six, even nine months will ensure your financial security, even if you are hit by a disaster.
Step 4. Start paying off your debts when you're settled
Whether it's credit card debt or mortgage debt, debt can keep you from saving. Start with the debt that has the highest interest rate (if this is your mortgage, try to pay the larger portion, but focus on the non-payment debt first). Then, pay off the debt with the second highest interest rate. Keep going until you pay off all your debts.
Step 5. Start really saving for retirement
If you're 45 to 50 years old, and you haven't started saving for retirement, it's very important to "catch up" with yourself. Put maximum funds into your 401(k) account annually; if you are over 50, you need to try even harder.
- Prioritize saving for retirement – more than saving for your child's education. You can borrow money to pay for your child's college, but you can't borrow money to add to your retirement fund.
- If you really don't know how much money you should save, use the online retirement calculator calculator – you can use Kiplinger's calculator here.
- Consult a planner or financial advisor. If you want to maximize your retirement savings but don't know where to start, talk to a licensed professional financial planner. Financial planners are trained to invest your money wisely, and usually have a good ROI record. On the one hand, you have to pay for their services, but on the other hand, you pay them to give you money. Not a bad idea.
Tips
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When there are a lot of foreclosures, hold off on buying your new home, as prices will continue to fall following the law of supply and demand when the bank is motivated to sell.
- Then, when all the foreclosures are successfully sold by the bank, the law of supply and demand will force prices to rise again.
- As long as there aren't too many foreclosures, hold on to your property, as prices will go up.
- Debit cards are a poor alternative to credit cards. It provides direct access to bank accounts without intermediaries. In addition, a temporary hold from the seller keeps you from accessing your money, even if you end up buying nothing (for example, some gas stations will hold IDR 1,000,000 in your account when you insert your card, regardless of how much that you bought).
- Improve your qualifications. Take the time to improve your knowledge and skills so you can stay competitive. This will increase your chances of earning more money in the future.
