Godknows Hofisi
Business & Law

On Thursday December 22, 2022, I wrote an article titled “Festive season, back to school” in which I gave some ideas on how to manage personal finances during the 2022 Christmas period into January 2023.

I got several calls from people who read the article in the printed version of The Herald Finance & Business.

Some even said it was as if I had read into their minds. In the current article I broaden my perspective from the Christmas period to the whole of next year and how one can improve his or her personal financial situation.

I hope and pray that you will find this article useful to you.

Improving personal finances

In this article I look at the following areas:

Generating more money

Managing costs

Savings

Investments

Borrowings

Generating more money

The ideal situation is to generate or make more money. Everyone prefers this scenario but is the most difficult as it comes with a lot of pain and lack of sleep. In business or financial language this is at times referred to as growing the “top line”.

For those who run income generating projects or businesses the top line or income can be grown in a number of ways such as:

Increasing volumes by selling more of the same product.

Product diversification by selling different products.

New income generating projects or businesses.

Increasing volumes without more than proportionate reduction in prices results in more income or revenue. In other words if one can sell more units of the product this may translate into more revenue unless there is a reduction in prices which is more than the increase in volumes. Volumes can be increased through marketing and advertising to the same markets or developing new markets.

In both instances one has to be mindful of the costs of increasing revenue as some could be hidden if there is no proper system of accounting to record and report them.

Product diversification involves coming up with new products or variations of the same product. The new products or variations may be sold to the same or new markets.

This option is not necessarily easy but can be rewarding if it succeeds.

Coming up with or developing new income generating projects or businesses is not easy. It involves coming up with new business ideas and developing them into income streams.

There is a lot of hard work involved including creativity and imagination. This is an option many people are not comfortable with and would rather avoid though the rewards can be so good.

For those in employment, options to improve personal finances may include:

Moving to higher paying jobs within the same organisation or elsewhere. This is not necessarily an easy option but is possible.

Going into income generating projects or businesses to augment one’s earnings.

Managing costs

Managing personal costs is not easy. At times one may not even know all the costs he or she incurs in a month for example, let alone a year.

Some of the costs may appear small but cumulatively may amount to something significant relative to one’s income.

It is therefore advisable to itemise one’s expenses into elements such as:

Rent, if any.

Food

Transport

School fees and ancillary costs

Medical provisions

Insurance

Funeral policies

Life assurances

Costs of doing business, if applicable.

Miscellaneous

Develop a financial model which captures all the costs and assign amounts to the cost elements. This will help you know your financial commitments in a month for example.

This can be useful in defining standard of living or lifestyle and whether you should adjust your expenditure down or up.

Be as realistic as possible to avoid omitting costs. Managing costs of doing business may result in better profitability or liquidity or both.

Savings

It is advisable to make some savings in the form of cash. Emergencies do visit. You need to have a fall-back position. For example you may have medical aid cover but there can be shortfalls or you may have to assist a family who has no medical aid cover.

Savings may also be made so that you can make future investments such will help you generate more income or acquire assets such as immovable properties.

It depends with your situation. However, I strongly advise against utilising 100 percent of your earnings, if possible.

Investments

Make plans for investments, defining the type of investments you want to make and how to finance them.

You may use your savings to part finance or use a combination of savings and borrowings to finance investments.

Regardless of your situation try to invest in something no matter how small it may appear to you. For example you may increase working capital for your small income generating projects or businesses and grow it.

Borrowings

Borrowings need great care as they present both opportunities and risks. I advise people to be open minded as borrowing is not necessarily a bad thing.

Opportunities come when you can borrow and invest the proceeds from borrowings or use them to solve a financial situation that is troubling you.

People usually borrow to acquire immovable assets or to inject working capital in businesses. I advise people against borrowing for recurrent expenditure or for lifestyle.

Risks come if one over-borrows relative to his or her ability to repay or diverts part of the funds for unintended purposes such as recurrent expenditure or buying cars.

One also needs to reduce or eliminate high interest bearing loans. For example I know the interest charges on some Zimbabwe dollar loans could be high and there could be merit in reducing such borrowings if possible.

Conclusion

I wish you a better financial situation going forward. Yes, financial situations differ. However, you may try generating more money, manage your costs prudently, making savings, investing and managing borrowings.

Disclaimer

This simplified article is for general information purposes only and does not constitute the writer’s professional advice.

Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B.Compt (UNISA), CA(Z), MBA(EBS, Heriot- Watt, UK) is a practising commercial lawyer and conveyancer, chartered accountant, insolvency practitioner, registered tax accountant, consultant in deal structuring and business valuer. He is also a director with Investacare International (Private) Limited. He writes in his personal capacity. He can be contacted on +263 772 246 900 or [email protected]