Financial Hygiene

Financial health is your overall financial wellbeing, security and stability. Financial hygiene is the actions and habits that affect it.

Like personal hygiene, it needs regular attention. You want to spot small problems before they become bigger ones.

There are no hard and fast rules here. It is more a mindset than a skill.

Know where you stand

The only way to measure progress is to know where you are starting.

Assets minus liabilities equals net worth.

Assets include cash, investments, property and possessions with resale value. If you include your car, jewellery or gadgets, use what they are worth now, not what you paid for them. That does not make every asset an investment. It makes it something with value on your personal balance sheet.

Liabilities are the debts you owe.

It doesn't matter whether the starting number is high, low or negative. What matters is knowing where you stand.

Track what comes in and what goes out

Take a piece of paper and write down what you earn from all your sources, then what you spend it on.

I like pen and paper for this. It slows you down and makes you think. Writing down where the money goes adds a little friction. That can be useful.

As you list your income, ask whether you are earning your true worth. Is it time for that promotion discussion you have been putting off? Is there a skill you can monetise? Would learning something new help you find a better job?

Then look at the outgoings. Are they necessary? Can they be reduced? Put a star next to anything you could reduce or eliminate.

Make the budget realistic

Use those notes to create a simple budget. Categorising spending can show you how much really goes on clothes, entertainment or eating out.

I know people who track down to pennies. We don't all need to go into that much detail. That itself takes time that could be spent elsewhere.

The budget has to be realistic or you won't stick to it.

Build a cushion

Saving is easier said than done.

How much you need depends on your spending, job security, dependants and responsibilities. My own approach changed as my responsibilities grew. There isn't one number that works for everyone.

Many people decide what they can save and put it aside first, rather than waiting to see what is left at the end of the month. That is good discipline.

Understand what the money is for

An emergency cushion and money for a short-term goal have a job to do. A wedding, a holiday, university fees, Hajj. Investments can fall in value, so money you need soon needs different treatment from money you can leave invested.

Where you invest depends on your circumstances, skills, appetite for risk and where you live. Investing in yourself may mean learning a skill that improves your income, work environment or work-life balance.

Learning to make money from money, rather than only from time, matters. But knowing what to buy is a different subject from knowing how to manage your money.

Protect what you build

Making money is only part of it. You also need to know how to keep it safe.

Avoid unnecessary debt, borrowing too heavily and chasing hype. Understand where your money is, how it works and how you could lose it.

Financial literacy helps you recognise when someone is selling to you, rather than helping you. Scams don't only catch people who know nothing about money. Even smart people get caught out.

Keep learning

Understand the basics that affect everyday decisions. Depreciation, compounding, inflation, how banking works. Learn to spot an opportunity and smell a scam.

Cash flow, spending discipline, income, emergency buffers and behaviour. Mostly boring. But these are the habits that help you stay in control and have money to invest when you are ready.