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THE FINANCIAL PORTAL'S MONEY
MANAGEMENT TIPS
Good money
management is about understanding the difference between
needs and wants and then spending your money wisely and not
incurring debt unnecessarily.
A cycle of earning and
spending that goes on and on doesn’t allow anyone to plan
for the future. Add to that the temptation of getting into
debt (spending money you haven’t earned yet) and good money
management becomes almost impossible.
Because credit is easily
available, we are tempted into borrowing when we shouldn’t.
Incurring liabilities should be done responsibly for
long-term assets which you will still possess after the debt
has been paid off.
The money we earn from
employment should be spent firstly on the family’s essential
needs before we satisfy the less essential wants, which are
just nice to have.
We should aim to have
something left so that we can save and invest. We should
avoid spending more than we earn so that we have to borrow
just to maintain our everyday living expenses.
BUDGET
All of us are capable of
managing our affairs well by using a budget. First write
down exactly what comes in (salary & wages, etc.) each month
and what your expenses are. Paying off your creditors has to
be your first priority. Put fixed expenses (electricity,
water, school fees and rent or bond repayments) and a
limited grocery expense at the top of your list. From what
you have left, work out how much you can afford to pay each
creditor each month.
Discuss the
situation with your family. One of the biggest obstacles to
overcoming debt is lack of co-operation among family
members. This is not something you need to discuss with the
children. But if you have adult family members depending on
your income, discuss the situation with them. If your family
is to get out of debt, all the members must co-operate. All
must agree on the budget you have drawn up and stick to it.
It takes discipline, but it can be done.
GET OUT OF
DEBT
Debt is the number one
financial problem for high and low earners alike. The more
we borrow, the more interest we pay and the less disposable
income we have. Debt brings worry, stress, marital problems
and a sense of hopelessness about the future. Debt can also
enslave us — especially if we do not honestly face the
problem and make a plan to get out of it and stay out of it.
Make a list of all your
creditors and write down how much you owe each one.
Which debt is
the priority to pay off first? The one with the higher
monthly amount may seem to be more important, but this is
misleading. The answer is the one charging the higher
interest!
The first line
of defence is knowledge. Know each debt, and its terms of
repayment. Most importantly, know the interest you are
paying each month on each debt. Then you will know which
debts are a priority to pay off as soon as possible, and
which you can afford to carry a little longer.
Unmanaged debt can land you
in serious trouble. People who do not pay their debts end up
being blacklisted. This means your name is forwarded to the
Credit Bureau, which keeps a list of all debt defaulters.
Being blacklisted seriously restricts your freedom.
If you are in serious
financial trouble, and you own a home, your first priority
is always to protect your home. Face up to the problem and
contact your bank. Explain the seriousness of your
situation. Ask them to work out the lowest possible
repayment plan for your home loan that is acceptable to
them. Then stick to the agreement. Don’t run away from the
problem!
If you are
really desperate about your current debt situation and there
is no easy way out, you should consider seeing a debt
counsellor. Refer to the links under the Debt/Credit
heading on the left.
DO
NOT INCUR NEW DEBTS UNNECESSARILY
Get rid of the “keep
up with the Joneses” mentality. Live within your means. Curb
that urge to spend, spend, spend. Don't be fooled
into thinking your self-worth is determined by your
possessions and avoid comparing yourself to better-off
friends, as this could encourage you to take on more debt
and financial obligation that you can afford.
Many people
have expensive cars, grand homes and designer clothes. We
tend to look at them and want what they have. But remember,
real happiness and success come with managing what we have –
not trying to have things we cannot afford.
Most of us have
discovered that to live entirely debt-free is almost
impossible in our modern world. Overdraft facilities and
retail accounts can be extremely useful, making life easier
when cash is short. The danger is in seeing credit as a
free-for-all. Credit gives licence to a most basic human
urge - the urge to buy and own things. This urge if
unchecked, can grow out of all proportion. Buying things
that we do not need can become a way of life. This is fine
if we have unlimited money. But if money is limited, we have
to prioritise. Many people never learn to prioritise and, as
a result, find themselves in quite a mess.
Decide together what the
family really needs. What is more important: new bikes for
the kids or a savings account for their education? Delay gratification. Appreciate what you
have.
Save for big-ticket
items like furniture and appliances and only purchase when
you have the cash.
SPEND LESS AND REDUCE YOUR EXPENSES
We live in a
world which promotes spending. We are subjected to an almost
constant bombardment of TV, radio and magazine
advertisements urging us to spend, spend, spend.
We need to
become more aware of how we are tempted by advertisers to
want things that we do not really need. We need to remember
other expenses that may become a priority in the near future
e.g. school fees, bond repayments, a car. We simply cannot
buy everything our hearts desire.
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