10 Essential Things About Money

Money is a scarce resource; you need to manage it wisely to enjoy financial freedom. These are the ten things to look into to achieve financial independence:  

1.       What’s your financial position now: Are you the true owner of your wealth such as your home and your cars? Or is it the bank? Do a computation of your net worth to see if the bottom line is positive (you are the true owner of your wealth- you own more than you owe) or negative( you are deeply in debt and the banks own your house and motor vehicles). This is the starting point to take the next step – to set meaningful financial goals

2.       Set goals: The first thing you do is to design a budget. The aim is to settle the debt (if you are in debt) as soon as possible and to ensure that at the end of every month there is a surplus fund available for savings and investment. Budgeting is a balancing act. When you allocate too much in one area, say food and household expenses, you may end up not having money left for entertainment. When you try to save more, you may not have sufficient funds for essential items.

 Reduce debt: The most important objective of personal finance is to clear your debts as quickly as possible. If left unattended, interest on interest will snowball the outstanding amount to such a huge sum that you are unable to handle.

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4.       Reduce expenses: At the same time, take a good look at your expenses and see which area you can trim further.  Develop good habits of sticking to your budget and avoid spending on impulse especially on material things that you want but not essential. Be smart in using credit cards.  The key is to avoid credit and debt but to take advantage of credit cards to pay less on purchases made. Settle your credit card bills promptly and fully every month to establish your creditworthiness. Live within your means to avoid debt and incurring interest. Reduce your income taxes by taking advantage of applicable deductions.

5.       Save: The surplus fund that you have saved serve two important areas apart from retirement and children’s education. The first one is the setup of an emergency fund to last three to six month’s living expenses. In case you are out of work, you are still able to maintain your living standard until you find a new job. The other thing is to save and buy big-ticket items that you have in mind like a new TV to replace the set which breaks down frequently. Save and buy is better than buy now and incur debt and interest.

6.       Build wealth: There is a quick and simple way to find out how quickly your money will grow. This is the simple rule of 72. It tells you when your money will double at a given interest rate. At 10 % it will take 7.2 years and at 6% it will take you 12 years. Just divide 72 by the interest rate. Think and consider other vehicles of investment, according to your risk-tolerant, to grow your money. Find out more about bond funds, mutual funds, stocks and shares, and  real estate investment

7.       Fund for retirement: It is easier to set aside money sooner to save and invest for retirement because a smaller amount is needed rather than later.

8.       Fund for children’s higher education: It is also necessary to save early and allow compound interest to accumulate a fund for your children’s tertiary education.

9.       Insurance protection: Life is full of uncertainties. It is a good move to take up a life policy to cushion the blow in the unfortunate event that you are no longer around to look after your spouse and children. The proceeds from the policy allow your family to carry on living without financial difficulties. You also need to consider Insurance protection against disability due to serious accidents and health insurance to cover critical illnesses. It is also necessary to protect your dwelling and its contents again such perils as fire and flood.

10.   Estate planning: Over the years you will have accumulated more  wealth, it is never too early  to draw up a will to allow your estate to be distributed to your loved ones  according to your wish in a hassle-free way,

While you take care of money matters, don’t forget to look after your health, invest in further education, and appreciate what you have in life. Have fun and be happy.

Source: 10 Essential Things About Money