Prudent financial management can indeed put you at a very good position in so far as financial security is concerned. It is what everyone wants but lack the zeal, knowledge and commitment to take the plunge. Most people find themselves making promises to change the way they handle finances but never come through when it comes to implementation. The end result has been an increasing number of individuals living from hand to mouth, embroiled in debt and struggling to pay bills on a monthly basis. Understanding the basics of personal finance can help you go a long way in making prudent decisions as regards your finances and by so doing achieve financial security as you create and amass wealth. In light of this, what are the fundamentals of personal finance?
Prudent financial management requires that you have a budget of how you spend your money. In the absence of that, you might find it difficult tracing how much you use your money or how you spend your entire monthly paycheck. Creating a budget puts you in control and gives you a clear picture of how you spend your money, the money you are left with and how to go about saving or investing the same.
In order to efficiently deal with the fundamental of personal finance, it is essential that you get a hang on of how to invest and what to invest in. wise decisions when it comes to investment is very paramount as it gives you the confidence and peace of mind that you will get handsome returns on investment. You can invest in mutual funds, put funds in a retirement savings plan with attractive interest rates, invest in real estates, bonds or simply invest in assets that appreciate over time.
Practice debt management
While having a budget and cutting down on unnecessary expenditure might put you on top of your finances, mismanagement of debt as a result of impulse buying and overspending can put you on a downward spiral. Avoid debt at all costs as it can put you in a financial quagmire. If you must spend or purchase something, then ensure that you use cash as opposed to credit cards. If it makes any difference, avoid the temptation to buy now and pay later as is the case with credit cards. When you spend hard cash, you are more likely to refrain from unwanted expenditure since you feel the pinch as opposed to the use of credit cards. Additionally, ensure that you keep your credit score high as it drastically reduces your ability to get access to loans or even mobile phone contracts.
Insurance is a fundamental of personal finance as it protects you from the risk of losing everything you’ve invested in. Don’t invest and bury your head in the sand. Anything can happen any time to your investment or money and hence the need to obtain insurance. The benefit or advantage of insurance is the fact that it returns you to the same financial position you enjoyed prior to the occurrence of a loss. Unforeseen disasters and accidents can happen any time and hence it’s important to obtain insurance to cushion yourself against these unforeseen circumstances.
Do not be easily attracted to pyramid schemes, gambling activities or Ponzi schemes that might see all your money or investments go up in smoke. Engage in prudent financial management and invest wisely. Pyramid schemes and gambling are simply going to make you lose money and get deeper into debt.