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10 Tips for Personal Financial Management

Updated on October 28, 2019
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The writer has a Master's Degree in Economics. She enjoys researching and writing about economic and business issues.

Be financially ready for your retirement years
Be financially ready for your retirement years

In most countries, the retirement ages range from mid-50s to mid-60s. For example, the official retirement age is 65 in the United States, while Japanese people are encouraged to retire between 60 years old and 70 years old, with more benefits giving to the older retirees. In Vietnam, the retirement age of women is 55 years old, and that of men is 60 years old. Generally, life expectancy rises in most countries, and according to the World Health Organization, the global life expectancy stood at 72 years old in 2017.

Global Life Expectancy
Global Life Expectancy | Source

Nonetheless, for people in their late 50s, unless they are at the top of their career ladders, holding irreplaceable positions, they become extremely susceptible to changes in the economy and job market. Losing one’s jobs unexpectedly at this age can be a hard blow to the senior workers for many reasons. First, employers prefer hiring fresh young graduates who can be trained easily and require lower pay. Second, many seniors might do the same job for a long time, making it more difficult to change skills and adapt to a new environment. Third, if seniors want to invest in learning new degrees/ certificates to boost their employability, their potential returns on investment will be meager due to their short remaining working time. Hence, to prepare for one’s own financial safety, it is a great idea to start as early as possible. Here is a list of things to consider to be financially responsible and secured.

  1. Monitor Debt Obligations
  2. Avoid Loan Sharks at All Costs
  3. Cut down on Credit Card Debts
  4. Buy Insurance
  5. Have Retirement Plans
  6. Have Multiple Sources of Income
  7. Live Frugally
  8. Own Assets
  9. Stay Healthy
  10. Save, save, and save

1. Monitor Debt Obligations

Debts are now considered part of one’s life. There are all types of debts that people take out at various stages in their life such as student loans, mortgages, auto loans, medical loans, etc. Nevertheless, statistics show that Americans are living beyond their earnings, with the average household owing $137,063 in debt while earning less than $60,000 in median income in 2017. Breaking down by age groups, a study by Time showed that people aging from 45 – 54 held the highest amount of debts, estimated at $134,600, followed by the 35 – 44 years old group with $133,000 worth of debt. More disturbingly, people past retirement age are still left with an average of $66,000 in debt.

As a nation, the United States' debts also increased relative to its GDP
As a nation, the United States' debts also increased relative to its GDP

To be financially safe, a person’s debts must be proportional to his/her income; in other words, after taking into account living expenses, the remaining income must be able to cover all debt obligations. The more one earns, the more debts one can take out. The general rule of thumb for debt ratio is the 28/36 rule, which dictates that households/ individuals should spend less than 28% of their earning on home-related expenses, and less than 36% on all other debt services. In addition, you should develop a habit of keeping track of your expenses, debt obligations and income to monitor changes in your income and detect anything unusual. With the availability of personal financial planning/ tracking phone applications or computer software, personal financial management is easier than ever before. Moreover, people should also plan to pay off their debts as early as possible, for example, aiming at a 15-year mortgage instead of a 30-year mortgage. By this way, they can pay off all their debts before becoming too old.

2. Avoid Loan Sharks at All Costs

Loan sharks are individuals or organizations offering loans at exorbitant interest rates. While these activities are illegal and punishable by laws, they still exist and attract borrowers who are desperate enough. Many people choose this service for quick money. Others go to loan sharks because they cannot obtain loans from banks or other financial institutions. Some are swindled into loan sharks’ hands. These loan providers not only charge high interests but also resort to abuse, threats, and violence to harass their victims. Hence, potential borrowers must think carefully before procuring from loan sharks. In addition, to avoid deception, check the legitimacy of potential lenders and read the paperwork thoroughly including the fine print before signing anything. Once going to loan sharks, it is hard to turn back without severe repercussions.

3. Cut down on Credit Card Debts

Although some debts are regarded as good debts such as student loans or investments, credit card debts are considered the worst and the most detrimental to your financial safety. Most credit card debts are spent on short-term and non-durable goods, which are consumed immediately or depreciate in value overnight. In addition, with a credit card, many people are tempted to go on many shopping sprees without realizing that they are spending their unearned income. To make the matter worse, many banks and credit card companies offer many seemingly attractive promotional programs to encourage credit card holders to swipe their cards in hope of accumulating their rewards. If you manage to pay your full balance before the due date, you will be charged no interest. However, if you fail to make payment on time, the average interest rate on credit card debt is sky-high, estimated at nearly 13% and with no grace period in some cases. Therefore, before buying anything on credit, you should determine if you really need the items, if you have any other payment options, and if you can repay on time.

Say no to credit card debts
Say no to credit card debts

4. Buy Insurance

Insurance protects people in face of accidents or other unpredictable disasters. There are many types of insurance including health, home, car, unemployment and life insurance. While the benefits of insurance are tremendous, many people still live without any insurance for many reasons. For some people, they are ignorant of the benefits of insurance and the available options/ providers. Others want to save their money for other things, or would rather take risks and play with their luck. However, as you grow older, your stakes are higher. You are also more vulnerable to accidents and illness. For example, in the United States, road accident fatality rates are highest among males in the age groups of 41 to 45, 46 to 50, and 51 to 55[1]. In Australia, in 2017, the highest number of road deaths was 392 for people aging from 40 – 64[2]. It is worth noticing that while incidents like accidents, fire or natural disasters are rare, their consequences and financial costs are enormous without insurance. Hence, buying insurance is a wise investment.

As for healthcare, many countries provide health insurance for their senior citizens such as the Medicare program in the United States; however, many seniors see these programs’ coverage inadequate due to their worsening health state. Since there are many insurance providers on the market, both public and private companies, before making any decisions, you should research your options carefully.

Insurance protects you against mischief
Insurance protects you against mischief

5. Have Retirement Plans

In some countries, the government provides retired, low-income senior citizens with basic income to help them make ends meet. For instance, in the United States, the government runs the Supplemental Security Income program to provide for very poor senior citizens. However, very few countries can afford to do so, and often the grants only cover very basic needs. As a result, it is crucial to have a retirement fund/ saving account to fund your expenses when you retire. There are many choices to contribute to your pension funds ranging from government pension, which provides limited support for retirees, to private plans, which allow participants to make more flexible and substantial contributions.

To illustrate, in the United States, if you work for a company, you can contribute towards retirement funds such as 401(k), Employee Stock Ownership Plan, or Stock Bonus Plan etc. If you are a freelancer, you can make contributions through Simplified Employee Pension Plan. In the United Kingdom, there are also many options such as state pensions, personal pensions, workplace pensions, etc. In any cases, you should initiate retirement plans as early as you can to avoid low income during your golden years. In addition, many pension schemes require participants to contribute for a minimum amount of years to be qualified for full payment.

6. Have Multiple Sources of Income

Having multiple sources of income is a great way to stay financially safe in your old age. In addition to your pensions, you can earn interests from your savings, stock dividends, royalties, etc. Depending on your physical and mental conditions, you can also actively generate income, especially passive income. In fact, there are many ways to make passive income that are suitable for elder people such as online writing, blogging, visiting bloggers, guest speakers, online teaching, etc. You can also rent out your properties such as cars, houses, vacant/ extra bedroom, and so on to make additional income. Moreover, you should do proper research to ensure that you make use of all benefits that senior citizens are entitled to such as housing grants, food stamps, medical assistance, etc.

7. Live Frugally

Minimalism can help you to reduce excessive spending and boost your saving. Looking through all the items you own, you may find that many of them are useless and meaningless, particularly in your old age. In fact, owning more than you can afford only leads to more debts and wastefulness. Hence, you should take a good look of your belongings and auction off the things that you no longer use to make extra income. In addition, you should reevaluate your needs at the moment and anticipate your needs in your late years to make appropriate adjustments. For instance, if your children have moved out of the house, you can consider selling your big house and moving to a smaller apartment which is easier for an elder person to take care of.

Nonetheless, living frugally does not mean living in a poor condition. It means choosing a lifestyle that does not emphasize material extravagance but allows you to live past the material needs and spend resources to invest in your emotional, mental and spiritual well-being. After all, you cannot take any of your possession with you after you are gone.

8. Own Assets

While you should avoid spending money on spontaneous shopping and impulsive consumer goods, owning durable/ long-term assets can be beneficial and improve your worth. Moreover, many assets appreciate values over time, giving you decent profit and income in your old age. Generally, real estate, gold and other precious metals, government bonds, stocks, and foreign currencies are common investment channels. Depending on your financial capacity, specialty and market conditions, you can choose the ones that suit you the most. Additionally, you can hire a professional investment consultant to help you manage your investment. Once again, make sure that you do proper research to hire the right people.

An example asset investment portfolio
An example asset investment portfolio

9. Stay Healthy

When you grow old, you will realize that health is your most precious asset. Being ill is not only costly but also prevents you from working and enjoying high quality of life. Therefore, when you are still young, you should invest in maintaining a good health. For a starter, try to live responsibly and practice healthy habits such as avoiding fast food, eating more vegetables and fruits, drinking lots of water, quitting smoking and drinking, and working out more frequently. If your job requires you to sit for a long time, make an effort to take a short break whenever possible to do some simple stretching and exercises. If you work in a hazardous environment, you should take precautions and follow all safety procedures to protect yourself. When you are young, it is tempted to be reckless as the motto among the young is “you only live once”. However, keep in mind that you might live well into your 90s and you do not want to disable your body too early.

Exercising such as practicing yoga/ mediation is a great way to stay physically and mentally healthy
Exercising such as practicing yoga/ mediation is a great way to stay physically and mentally healthy

10. Save, save, and save

To stay financially safe, saving is crucial. While some people believe that saving is directly proportional to income – i.e., the more one earns, the more one saves, – others claim that initial wealth and perceived income prospects also determine saving behaviors. Some cultures encourage saving and have higher propensity to save than others. For example, the ratio of saving to GDP of China is well over 50% while that of the United States is less than 20%. Although it is obvious that you can only save if your earning is greater than your spending, you should examine your financial statement to see if you can raise your income or curb your expenses. Sometimes in retrospect, the things that you thought you must buy are not that useful, or you can cook at home and still have more fun than eating out at fancy fine dining restaurants. Besides, many people set personal goals for their saving. For instance, some people maintain a saving buffer worth of 3 months of expenditures/ or salaries. To motivate yourself, you can join some saving groups or look for saving partners/ buddies for your saving journey. As you grow older, your financial obligations also increase and it becomes harder to save. Therefore, you should practice your saving habits since you are still young.

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In sum, time flies and your old age arrives much faster than you think. Having good financial preparation helps you fully enjoy your retirement, spend quality time with your family, and explore things that you cannot do earlier due to your personal and work commitments. The keys to being financially secured are to work hard, spend wisely and start early.





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    • profile image


      16 months ago

      Was researching how to invest in Vietnam and came across your articles. Vietnam has great potential economically and more! Anyways, thanks for this article on retirement. It was well written with lots of good ideas. A valuable reminder, written in a down to earth style.

    • aesta1 profile image

      Mary Norton 

      24 months ago from Ontario, Canada

      Start early planning for retirement is the key. Learning how to manage your finances is another. We did not start early and only had financial knowledge much later so we encourage our grandchildren to learn as early as possible.


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