Financial management is something that everyone has to make plans for. It doesn’t matter what age you are in or what job you have, planning for a proper financial situation is a priority work every individual should do. Here is a list of few things every person should know, don’t just read them, but follow them:
- What is your GOAL?
Why do you need financial planning, what do you wish to achieve? This question must be answered. Because if you don’t have a goal, what will you plan and how will you plan? Even the management process says, first set a target and then start with the planning process.
- Your WANTS v/s Your NEEDS
Many people get confused between the two terms, i.e., Wants and Needs. But it is important to understand that needs are those things which are simple and one cannot live without them, like food, clothes, shelter, water etc. But wants are those things that we desire on the basis of the lifestyle or environment we live in. One must understand and choose wisely between his/her wants and needs according to their financial situation and priority of the thing.
- Limit the Expenses according to the Earnings!
When you spend, more than what you earn, it’s impossible to grow. The overspending habit is among everyone but this destroys the finances. One must do a change, and spend LESS than what you earn. This will increase the savings that will help in future. There’s a perfect proverb on overspending that ‘cut your dress according to your cloth’.
- Assets minus Liabilities = Success
Assets are the things that we own and have a value that adds, like savings account, car, home etc. While liabilities are the things we owe, like loans, credit cards etc. One must understand that the success is positive when assets are more than the liabilities. Plan your finances to increase the assets and reduce the liability.
- Don’t get caught up in ‘Consumer Debt’
Consumer debt’s biggest equipment is your credit card. Just because bank is allowing you to spend a lot, doesn’t really means that you will spend a lot. Know this, it’s not possible for everyone to earn a big amount, but it is possible for one to spend less.
- Invest but invest Smartly
The market has many options for an individual to invent in. But one must keep in mind his/her needs, their financial capabilities like risk management and investment limits. Just because others are running more into something, doesn’t mean you should also follow the crowd. Invest in things you understand.
- Last, but not the least, always keep a backup ready
Don’t believe in “Life don’t go as we plan”, but believe in “Life didn’t go as planned, and it’s OK”. One must always have an emergency fund in case of unexpected crisis. It may be job loss, health issues, surprise expenses or any other life event that can suddenly affect the financial status of an individual. It is crucial to have a backup plan to overcome such difficulties.