I have been a licensed financial planner for ten years. However, my objective here is not to provide you with a personal financial management consultation.
These essential personal finance management tips will help you increase awareness of your current financial situation
This list will also provide you with simple steps on how to improve your personal financial situation for yourself and your family.
Please note that my views here do not represent any financial organization. All the points stated here are only good as a general guide.
My best recommendation is still for you to engage a local qualified and trusted financial planner.
A professional financial planner can help you thoroughly assess your financial situation and needs. They can then provide you with customized personal finance management tips tailor-make a financial portfolio that will help you achieve your financial goals.
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13 Essential Personal Finance Management Tips For Moms
1. The foundation of insurance is hospitalization and accident coverage.
Insurance policies that cover you for hospitalization and accidents are typically very affordable. Yet, they can provide you with very comprehensive coverage so that you don’t have to expend your savings in the unfortunate and unexpected event of an accident or an illness.
After all, the last thing you want is to wipe out your savings just to receive treatment.
With comprehensive hospitalization coverage in place, you will not have to worry about getting the necessary treatment for your best recovery.
This type of insurance is a must-have for everyone. I mean everybody, whether you are a stay at home mom or the sole breadwinner of your family. Even for your kids — get them covered against hospitalization and accidents.
2. Purchase life insurance as soon as you start earning an income.
Life insurance can usually provide coverage against death, total permanent disability, and critical illnesses up to the age of 100 (ie your entire lifetime).
Life insurance policies typically lock in premiums at the age of entry. Therefore, buying life insurance later in life means you will be paying much more for the same amount of coverage.
Some life insurance policies now offer limited premium payment terms which means you only have to finance the policy for a short period of time (ie. 10 or 20 years) but still enjoy lifelong coverage.
Even if this is the only policy you ever buy, at least you know you will be covered for life without worrying about paying for insurance in your retirement years.
3. Diversify your savings.
Look for savings instruments that can provide you with guaranteed returns.
But you should also diversify your savings by looking into investments based on your risk appetite.
Most savings instruments are not able to help you beat inflation. This means the value of your money still decreases over time.
Only investments will give you the chance of growing your money significantly.
Always diversify your savings and investments in different instruments to better hedge your risk.
4. Invest what you can afford to lose.
The last thing you want is to lose sleep over your investments.
It is always wise to start with a small investment amount — something you can afford comfortably without sacrificing other essential expenses.
There are always risks in investments. Therefore, an important personal financial management advice is to only invest an amount that you are mentally prepared to lose.
In the worst-case scenario where you lose your entire investment, you would be able to get on with your daily expenses.
5. Make use of dollar-cost averaging for your investments.
Instead of investing one lump sum, “dollar-cost averaging” is an investment strategy that helps to reduce the volatility on large purchases of financial assets such as equities.
It minimizes risks by spreading the investment over a period of time with smaller, regular amounts.
Therefore, if you are looking into doing investments, it’s best to leverage with regular monthly amounts than one lump sum.
You can read more about dollar-cost averaging here.
6. Ideal coverage against death is 10 times your annual income.
“How much insurance coverage is enough?” is a question I hear very often from my clients.
My reply would be that you should be covered for at least ten times your annual income.
This is a simplified formula for calculating the amount of insurance that a person needs.
Of course, this ideal insurance coverage varies according to the individual’s current situation and life stage, including the number of dependents and unique financial needs.
If you have very young children and you are the sole breadwinner, then you should be covered for a minimum amount equivalent to:
(No. of years needed to support your kids up to tertiary education) X (Amount of annual expenses)
If your family’s expenses are high, then the breadwinner of the family should be covered for a higher amount.
As much as it sounds morbid to discuss you or your spouse’s death, it is a very important issue. Especially if you have young children.
What would happen to the children if one of you passes on? What would happen if the breadwinner of the family is no longer around?
Even if you have trusted family members who would take care of your children, adopting more children would most definitely increase the financial burden of the family.
So, the question really is — Will your children be well provided for one parent passes on?
7. Ideal coverage against major critical illnesses is 5 times your annual income
Major critical illnesses refer to potentially dilapidating medical conditions such as cancer, stroke, heart attack, liver disease, and kidney failure.
If you are not covered by any insurance which provides a lump sum payout in the event of diagnosis, you may end up wiping out your savings to receive the necessary treatment.
From where I come from, there’s a saying that goes,
“If the sickness doesn’t kill you, the hospital bills will.”
Major cancer conditions have a high chance of relapsing within the first five years of diagnosis. Hence, it would be wise to protect yourself financially to replace at least five years worth of income.
Critical illness insurance coverage should be ON TOP of comprehensive hospitalization insurance.
The hospitalization insurance would cover for medical treatment while a separate critical illness insurance policy could provide a lump sum payout.
An insurance payout would help to cover for any income loss of pay for alternative treatment not carried out in hospitals.
Even additional supplements and changes to someone’s diet for the purpose of health improvement can be quite costly.
8. Ideally, you should have 6 months’ worth of emergency savings.
This refers to having a stash of savings that is equivalent to six months’ worth of income, or at the very least, six months’ worth of regular expenses.
Typically, we don’t spend all that we earn. So, we should build an emergency fund that will cover us for 6 months of essential expenses.
This would be your go-to fund for any essential and unexpected expenses, for example, fixing a car, retrenchment, or having to pay for a family member’s sudden illness or accident.
9. Saving in your current bank account is not really saving.
It is best to keep your disciplined savings in an endowment plan or a separate bank account.
Most people tend to spend more when they see their bank account growing and therefore, end up spending their supposed savings.
Being intentional about saving money in a separate bank account will more likely help you reach your savings goal because you can more easily track your savings progress.
After all, purposeful saving requires discipline!
10. Set aside 10 to 15 % of your monthly income for insurance, savings, and investments.
Honestly, anything less would probably not be impactful enough.
But if you have completely no savings or insurance coverage at the moment, setting aside 5% of your monthly income would be a very good start.
Once you get the hang of committing 5% of your monthly income into insurance and savings, try to increase this amount to 10% after 6 to 12 months.
11. Reward yourself.
Most of us would like to reward ourselves for all our hard work by buying something new, indulging in a treat, or going for a luxurious vacation.
Make it a point to set aside 5 to 10 % of your monthly income for the purpose of rewarding yourself.
This could be saving up for a new gadget, a short weekend getaway, or revamping your wardrobe.
Saving to spend does not contribute to true savings. This kind of savings should be separate from your 6-month emergency fund.
It should also be apart from the 10 to 15% that goes to your monthly insurance and savings fund.
12. It’s never too early to plan for your retirement.
How much you need for retirement really depends on your spending habits and the kind of lifestyle that you desire.
A simple way to calculate your required retirement sum would be:
(Amount of expected monthly expenses X 12 ) X (No. of retirement years)
Take the calculated amount and multiply it by two. This is a simplified way of taking into account inflation over the years.
Then take this final number and divide it by the number of years from now until your desired retirement age, and then divide it again by 12.
This would be the amount of money you should be saving every month from today in order to achieve your ideal retirement sum.
Sounds impossible? Then you’d better take action now!
Baby steps can go a long way too!
Consult a professional personal finance management consultant who can help you determine the best financial instrument to achieve your retirement goals.
13. Personal finance management is an ongoing process.
Your financial needs will change over the years as your family grows and as you modify your financial goals with your changing needs.
This is why having a trusted financial planner is so important. Your financial consultant should be familiar with the various local financial instruments that best suit your needs.
The appropriate recommendations can only be made after a thorough financial health analysis is carried out.
This financial health analysis should also be done every year to keep your finances in check and to update your changing needs in order to ensure your financial goals are met.
Free Undated Printable Financial Planner
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Over 50 printable pages with a 3-page personal finance management guide for your easy reference.
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Great tips! Thanks!
Thanks for reading!
This is great personal finance management advice! I wish I had purchased life insurance when I was younger. I also love that you advise that people use a separated portion of savings to reward themselves from time to time. I still have a difficult time with this one, but thankfully my hubby encourages it!
I totally understand what you mean! Most of us tend to think we are “invincible” when we were much younger and, therefore, put off buying insurance thinking that we don’t really need it. As much as it’s tempting to spend our first salaries on entertainment, it is wise to purchase life insurance when we are young.
Now that we know better as adults, we are also in a better position to educate our kids about personal finance management, since they don’t exactly learn that at school!
Thanks so much for reading!
This was an informative read. I knew about having 3 months not 6 months for an emergency fund and had never heard of dollar investing. Thank you for sharing these vital tips to help with financial literacy and preparedness.
Thank you so much! I’m glad you found the tips helpful!
Love your tips! Thanks for sharing.
Glad you found them helpful. Thanks for reading!
These are helpful tips and all of these things are important to think about. It’s hard to do all of this though if you can barely afford your usual monthly expenses. There are so many factors to consider. Thanks for the helpful information.
Yes that is so true. Always good to know what we should be planning for, though! Thanks so much for reading!
These are great tips for financial management. I am a big advocate for investing as well. We invest in mutual funds that will hopefully pay for our kids cars, colleges, weddings, one day!
I’m so glad you found this post on personal finance management helpful! Great planning on your end and I am sure you guys will look forward to harvesting the fruits of your investments in later years!
These are great tips. We definitely need to get on investing and getting life insurance!
Yes, most definitely! Especially if you have kids! Thanks for reading!
Great read . Definitely need to plan more.. thanks for the tips
Thanks so much for checking this post out! Wishing you a prosperous 2020!
I am good at spending and not good at financial planning. Thank you for the helpful information.
It definitely takes a lot of self-discipline. I struggle with over-spending too even though in my mind I know all these. It definitely helped me a lot when I start keeping track of my income and expenses in a financial planner. I sure hope it will help you too! Thank you so much for checking this out!
I was just blindsided with a job loss after 10 years with a company. Thanks for the tips, they’re gonna help me get back on my feet!
Hey Michelle, I am so sorry to hear that. This is a really challenging time and I cannot imagine how much tougher it is now for you and your family! I sincerely wish you all the best and I really hope that your blog business will grow multi-fold this year! Stay safe and take care!
Financial acumen is one of my weaknesses. There are so many important points such as diversifying investments and making sure death insurance is 10 times my salary that I was unaware of. I will be looking into your advice and recommendations.
Thank you so much for reading! It definitely takes time to build up your financial portfolios. I hope you will also find the free printable financial planner helpful!