In order to avoid financial problems, you must imbibe the habit of managing money efficiently, ADEMOLA ALAWIYE writes
Whether you do all the work yourself or hire a professional, there are some basic money principles to be adhered to. It is also necessary to have answers to the following questions.
What do you know about money? Do you understand money? Do you have a philosophy about how you use money?
Experts say many people have little understanding about money; consequently, their finances are never in order regardless of how much money they have. Below are simple money rules that you need to know.
Differentiate between needs and wants
Many people end up spending their fortunes on things they do not need. According to experts, everything that people really need revolves around food, shelter and clothing. They stress that a key aspect of financial planning is the ability to differentiate between needs and wants. Unfortunately, they say many people fail to do so. While it is true that in today’s world many items, besides the basic needs, are necessary, the decision to have your house fitted with classic paintings by great artists at great expense definitely falls under wants. And there are many more examples like that. Even when people go for their needs, their decision is often informed by their want. For instance, while you need a bed to sleep in, you do not need one that has gold engravings or fittings all over. Many people spend money that way, on the things they want, believing that they are getting things they need and this can be a costly mistake because it amounts to money going to waste. To spend money wisely, always distinguish between needs and wants then go for the needs and ignore the wants.
Do not spend all your earnings
While this is self-explanatory, many people find it impossible to spend less than they earn. But for you to keep your finances in order and to avoid getting into debt or running out of cash before the next pay day, if you do not spend all that you earn each month, you will have some cash to either pay off your debts or save. Now, the benefits of having some form of savings are numerous. Savings can allow you to invest, resolve emergencies and ease the financial pressure you feel when you run out of cash before your next earnings. Of course, the economic situation in the country has left some people with barely enough to feed, but many people have risen above such a challenge by adopting drastic savings tips.
More money may not be enough
For many people, the solution to their financial challenge is more money. While some of these people may genuinely need more money, experts say some others have enough but mismanage it because they are financially illiterate. They do not differentiate between their needs and wants; they adopt a lifestyle that results in spending more than they earn, etc. Take time out to determine which category of money user you belong to, and if you believe that more money is what you need, then you need to know that there will be a time when you will realise that you did not need all those gadgets, cars or personal houses. When that time comes, more money will hold no appeal.
Money decisions have costs
It is important to note that for every money decision you make, there is a cost attached. This means that by deciding to purchase one item, you are giving up another. By bearing this in mind and weighing both options critically, you are more likely to avoid making a mistake. For example, if you have N1m and you are to choose between buying a plot of land and buying a car, by choosing the car, you need to know that the car did not just cost you N1m, it also cost you a plot of land.
Develop yourself
For you to get the most out of your money, experts say it is important that you spend some to develop yourself. According to them, to develop yourself, you need to spend money to improve your knowledge and to acquire self-management and communication or networking skills, which will not only help you to grow but enable you to manage yourself, your health and finances better.
Don’t try to impress others
When you try to impress other people, you are likely to cause financial problems for yourself. Because not only is such a move capable of making you to live above your means, it is also likely to make you invest in items you do not need. For instance, there are people who have gone out of their way to purchase cars, only to find out that they cannot maintain them. Some of them are forced to sell the cars at a loss. The advice is that you live beneath your means, and develop a saving habit and in the future, perhaps when you are in your late 30s, you might be better off financially.
Also, avoid borrowing money. Of course it is easier said than done, but by being debt-free, you stand a better chance of taking control of your finances and planning for the future. According to experts, if you can just live within your means for some years, you will be able to achieve a high level of stability.
Copyright PUNCH.
September 13, 2015, 01:00:55 AM