2023 was a roller-coaster of a year: from the Israel-Palestine conflict to India being the most populous country, surpassing China, the BRICS Summit, the Turkey and Syria earthquake, and one of the greatest investors who ever lived, Charlie Munger, passing on.
While we don’t know what 2024 has in store for us, we can, at the very least, plan our finances well to avoid any surprises.
History predicts the future to some extent. The first thing you need to do in 2024 is to look at your 2023 cashflows, starting with your bank statements. From your bank statements, you can do the following:
- Re-think your budget
In your bank statements, you can see all the inflows, such as your salary or birthday gift from grandma, and outflows, such as your rent and groceries. Some inflows and outflows are fixed or known — like your salary, rent, and utility bills — so they are easy to budget for.
Let’s say your monthly income was $5,000 in 2023. Assume your known expenses are $2,500. Some expenses would have changed over the year because of inflation. Food and fuel, for example, increased over the year, and these would warrant changes in your 2024 budget. You can calculate the average of how much you spent last year on these goods and increase them by a percentage. So if you budgeted $700 on food in 2023, increase it by 10% to $770 for 2024.
- Plug in the gaps
When you peruse your statements, you can see where most of your money went and which expenses should be avoided. Takeout, alcohol, clothes, etc, can all be reduced to invest money in other things.
Another way to reduce your cash outflows is to note down all your subscriptions and stop paying for the ones you don’t use or get value out of. That $25/mo mobile game that grants you access to nice weapons or cars — do you really need it?
- Sources of income
Over 2023, you may have done some side gigs to earn more income. Some would be recurrent, and others once-off. You can then decide if you should increase the number of jobs you do (e.g., from 3 to 5 jobs), increase the size of the work (big vs small contracts), or work on switching your main source of income (changing employers or becoming a full-time entrepreneur).
- Bank Charges
One overlooked expense is your bank charges. It costs you to keep your money safe, and some banks have numerous fees that eat into your money. Switching to banks with lower fees can help reduce your expenses. Alternatively, investing in such a way that the returns offset your banking fees is a smart way to break even or even effectively get paid to bank.
Saving and Investing
Budgeting allows you to know how much you get, how much you pay, and how much you can set aside for the future.
Let’s say you earn $5,000. You know that to survive, you need to pay rent, food, transport, utilities, debt, etc. Say these come down to $4,000. You have $1,000 to spend on entertainment or to save or invest. Let’s say you decide to save $300 and invest $300 per month. This means that you are left with $400 to spend on entertainment.
When you get your first paycheck of the year, action the “pay yourself first” budgeting technique and save and invest $600 first before you pay for anything else.
This could be the year you decide to significantly reduce your debt burdens. I’ve written on debt before here. Clearing your debts can free up cash flow for other uses. If you pay $200 per month on a bad debt and clear it, that $200 could be used to get a good debt, saved for emergency purposes, or put toward your retirement.
Calculate how much extra you can put toward clearing your debt faster. That extra amount can shave off the time it takes to finish the loan — from years down to months.
Cultivating good habits is good for your health and wealth. For example, working out has good health benefits. Going to the gym 5 days a week stops you from partying the night before so you’re not hungover the next day. This means less money is spent on entertainment.
Doing online courses makes you more marketable and increases your income potential.
Taking up an interest in cooking reduces the number of take-outs you buy because your kitchen becomes a friend.
Cultivating good habits increases your chances of having a great financial year!
Sticking to your budget and your goals can be hard. But when done right, the benefits are immeasurable. You get to better your lifestyle and increase your wealth. Discipline means:
- Track your spending
There are apps you can use to account for your cash flows. These apps also group income and expenses so you know what you spend money most on.
These apps also show you your money habits in graphs and charts, prompting you to be more aware and disciplined since you can monitor and change your habits.
You can find an app here.
- Put yourself first
Take care of yourself before others. Save and invest before paying your bank, landlord, or utility providers. Setting money aside allows you to spend what’s left as you please.
- Say no
Unless you planned for it or can afford it twice, say no to things you don’t need: parties, clothing items, trips, etc.
Money buys time. The more money you have, the more time you have earned yourself. There will be plenty of time to say “yes” when you are wealthy.
- Get an accountability partner
Having someone remind you of your goals is invaluable. Your partner, parent, or friend can help you be disciplined by reminding you to save, invest, increase your income, and more.
Have a financially prosperous 2024!
From COVID to rapid inflation, our finances have been rattled. We need to re-set and re-align our goals and habits as we grow. Being realistic and disciplined goes a long way to bettering your financial situation.
Another important accountability partner is a trusted financial adviser. Reach out to one to help you align your finances with your goals so that you can do more, be more, and have more.
Happy New Year!