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SOME MONEY MANAGEMENT HINTS
© Craig Lock 2002
"We share what we know, so that you and your money will grow."
The following are miscellaneous tips on making the most of your
money. The most important basic principle is to live within your
means and a penny saved is a penny earned. (In fact a cent
saved is worth nearly two cents earned because of the effect
of tax on your earnings). Treat yourself occasionally; but don't
live extravagantly, unless your can afford it and still save. This is
fundamental to good money management; yet many people
don't follow this principle.
Firstly evaluate where you are now - by drawing up a statement
of your assets (e.g. house, car, furniture, etc.) and liabilities
(mortgage, personal loans, overdraft, hire purchase, credit cards
etc.) From this you can draw up a budget of income and
expenditure. Look at your outgoings and make a commitment
to live within that budget. Meet those goals on a weekly basis
and monitor your progress regularly. Sometimes it is necessary
to get help from budget advisors if you have a severe problem
that you cannot manage yourself.
WHAT DO YOU DO IF YOU CAN'T MEET YOUR DEBTS AND
MAKE AND MAKE ENDS MEET?
The best advice is admit it and try and to come to some
arrangement with your lender.
1. Draw up a budget of income and expenditure - cut down
on expenses, household and personal . Also consider part time
employment.
2. List your debts outstanding including payments still to be
made.
3. List your assets for possible sale.
4. Approach lenders to see if you can negotiate lower
repayments over a longer period to repay the amount.
5. Attempt to reorganise borrowings into one loan, perhaps
at a lower rate over a longer term.
You can also improve your financial position without receiving a
dollar more in income by not spending it. Most families spend
money inefficiently and could live more economically by cutting
costs in housing, car expenses, entertainment or hobbies. A
person smoking two packets of cigarettes a day would spend
over $3,000 a year which is about 10% of the average wage.
The golden rules to spending less are paying off debts as quickly
as you can - interest is the killer of your financial health. The
other is saving a nest egg fund for emergencies, such as
unexpected medical expenses.
HAVING FINANCIAL DISCIPLINE
* An inability to save is usually due to bad spending habits.
* There is more to be gained by cutting spending than
receiving a salary increase (because of the effect of tax).
* Aim to save at least 10% of your income, even if it means
cutting your costs to achieve this.
But all this is unsound, if the potential investor is heavily
mortgaged. The fastest route to financial freedom is to pay
off debts. "Knock your mortgage on the head as soon as
possible". It does not make a great deal of sense to invest
spare cash on one hand at 12% (and be taxed on that income),
while at the same time you're paying a mortgage at 16% after
income tax. Perhaps you could take on a boarder, or do some
repairs yourself, if you are technically minded. This is what I do.
Also sell under-utilized assets like boats and caravans. Some items
can be bought second-hand and will not lose their value as
quickly as new ones. Enlist the help of family members for
housework and gardening (in places like South Africa.)
2. Avoid excessive borrowing and do not borrow to buy
consumable or luxury items, such as cars and holidays. Rather
implement a savings plan to pay cash for those items in the
future - make them financial goals. Credit cards can be useful;
but use them sparingly, as the exception and not as the rule.
3. Borrow from the most cost efficient source - get your
mortgage from the bank or building society offering the lowest
interest rate. Also be alert to alternative cheaper forms of
finance. You will not achieve financial success, if you borrow
money to buy an asset that is not rising in value. The financial
return from the asset must be more than the interest cost of
the debt. If an asset fails to return at least the cost of financing
its purchase, then sell it.
4. Speculation. There are time's in a man's life when he should
not speculate. "When he can't afford it and when he can" (Mark
Twain). There is nothing wrong with financial speculation, as long
as it is done with money you can afford to lose and as long as
the odds are in your favour. However, don't gamble on the
horses or other high risk games of chance. Treat them purely
as entertainment and not the way to make a fortune. Investing
in the sharemarket is not really gambling, as the odds are in your
favour long term... even in the uncertainty and turmoil of today's
markets!
5. Opportunities. Opportunities are everywhere; so look out for
them - like perhaps going into business for yourself. Create your own
by looking at a situation from a different point of view. Remember
that change is an opportunity in disguise. Problems are not
insurmountable, but a challenge. Obstacles present opportunities
to find new paths.
6. Gain Knowledge. Investing without knowledge is perilous,
so expand your knowledge and insight by reading, listening
and thinking about financial matters. When in doubt, seek
advice from an independent financial consultant - as Ronald
Reagan said, "trust but verify". With knowledge and discipline
you will be financially successful.
Finally, a most important factor in good money management is a
positive outlook towards the future. You should also have a
positive mental attitude towards yourself; but at the same time
recognise your strengths and weaknesses. With a belief in your-
self and with commitment to your goals, you will be a successful
money manager. Have courage to take the tough financial
decisions that sometimes have to be made - ones like selling the
family home or downgrading the car to free up capital. Do not fear
failure. Project a positive image and market yourself as a person,
who enjoys the challenge of achievement.
Most of these proposals are common sense; but many people
ignore these basic rules of money management. Use your
IMAGINATION well in managing your personal finances...
then they will not manage you.
Good luck
Craig Lock
http://www.craiglockbooks.com
Craig Lock has been involved in the personal finance field
for many years before becoming an author.
Craig books on money management and financial success are available at:
http://www.nzenterprise.com/money/ and
http://www.bridgeniche.com/CLOCK/zaniestbooks.htm
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