Sound financial management includes being clear about your needs and wants, while also keeping an eye on your financial goals.
MANAGING your money can be overwhelming if you do not know where to start and this has caused many people to simply ignore their finances. However, proper financial management is essential if you want to enjoy financial security, and ultimately, financial freedom. If you are among those who are unsure of how to manage your finances, the following are some ways to help get you started.
1. Spend within your means
Live within your means by not spending more than what you make. You can achieve this by establishing a monthly budget which can help you prioritise your spending on needs over wants. “Needs” are things that we must have in order to survive, while “Wants” are things that we would like to have but are not necessary for our survival. Sometimes, it is also good to delay a purchase so that you can be sure it is something that you really need and not something that you simply want to buy on impulse. By being careful with your money, you can ensure that you will always have enough for your needs without relying on a credit card to make up for any shortfall.
2. Saving
Saving money is the cornerstone of sound financial management. As such, you should always pay yourself first each time you receive your paycheck before you spend the money on bills or purchases. A good start is to save at least 10% of your salary into a separate savings account. Having enough money socked away is especially useful when life throws financial surprises your way. Aside from that, savings can also help you achieve your financial goals. To make saving a seamless process, set a recurring deduction from your salary account to your investment account.
3. Avoid the debt trap
Avoiding the debt trap is important if you want to be able to do what you want in life as you would not need to worry about paying down debt. As such, it would be wise to avoid taking on personal loans or having a credit card debt as the interest payment will weigh you down if you cannot service the debt. However, not all debts are bad debts. Good debts can help you improve your finances in the long run, such as taking a loan to buy a house or going to university. So, be mindful when you decide to take on debt and be sure to service the debt on time if you do.
4. Investing
The best way to build your wealth and be on your way towards financial freedom is by making your money work for you, even while you are sleeping. This can be achieved by investing part of your money in investment vehicles, such as a unit trust, to increase its value over time. As time is of the essence when it comes to investing, you should start investing early and regularly, and maintain a long-term investment horizon to fully capitalise on the power of compounding interest. You can invest easily by automating your investment through payroll deduction.
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This article is prepared solely for educational and awareness purposes and should not be construed as an offer or a solicitation of an offer to purchase or subscribe to products offered by Public Mutual. No representation or warranty is made by Public Mutual, nor is there acceptance of any responsibility or liability as to the accuracy, completeness or correctness of the information contained herein.
