• Sunday, June 23, 2024
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BusinessDay

How to optimise your salary

The downside of salary and business income: What’s next?

In my last article, we discussed the myth mania that drives many of our personal finance decisions today. As promised, I will now show you surefire ways to prepare for salary week with principles that work.

There is one questionable principle many of us apply only this when it comes to our hard-earned income – the principle that money is simply for spending. And where does that get us apart from just running pillar to post? I’m going to show you how you can get the best out of your salary every month. It all starts with the 50:30:20 rule.

Calculate your essentials for the month – 50

Unless you want to keep being stranded every month, you should first calculate your basic needs like housing (though we don’t typically pay rent monthly, you are advised to save up for it monthly), transport, electricity and feeding. Put aside no more than 50 percent of your total income for these expenses. Your bills won’t stop coming so don’t stop planning for them. If you have a family that depends on you, it is even more imperative that you sort out this section before anything else.

Put something towards your financial future – 20

Aim to put about 20 percent of your income towards savings, investments, education, health and insurance and other future plans. You should do this next, so that you can also grow your money or at the very least protect yourself with it. If you’re new to investing, try something simple such as money market funds or T-bills – they are low risk and short term investments which will earn you good interest over time.

If you’re also wondering about health insurance, have a conversation with your employer to see what options they offer. It’s typically a payment you make once a year so if you must, find out about it and start putting money aside monthly towards the next year. And so it goes for other future financial goals that make up 20 percent of your monthly income.

Enjoy yourself with the rest – 30

If you’ve done right by steps 1 and 2, give yourself permission to enjoy yourself with the rest. The remaining 30 percent of your income can go to discretionary things like entertainment, clothing, small travelling, restaurants, data, personal care and giving. After all, we didn’t come to this life to simply suffer. As our wallets grow fatter, chances are that our tastes grow more expensive. Watch it…make sure it’s not the other way round where you acquire taste for the finer things first, before searching for ways to improve your disposable income, to keep up – A sure recipe for disaster.

Notes on budgeting

I believe that anyone can still live a beautiful life no matter their financial circumstances. This belief translates strongly in the app that my team and I built to help people do this mental chore automatically. It’s called REACH. If I had half the information that’s available from the app to us right now when I was starting out, I’d be one lucky millennial. Do yourself a favour to make it a part of your financial planning routine and thank me later. You can also write to me if you can’t wait to [email protected]. I’m always happy to help.

Kanu holds an MBA from Stanford University, a master’s in Journalism from NYU and a bachelor’s in Engineering from Calvin College. His career has included time at Konga, Amazon, The United Nations, Esquire, CNN, and Black Enterprise magazine. Armed with a strong conviction that you can live a great life no matter how much money you have, JR founded REACH Technologies, www.reach.africa. His company builds software to help young people and companies to manage and grow their money.