Avoiding financial woes is a simple matter, yet most people never give much thought to this until financial woes have beset them, i.e. too late! The solution lies in effective planning as early as possible, planning for both the future and contingencies and exercising financial prudence. Listed below are simple rules to avoid financial woes...
Never spend beyond your income limits
The general rule of thumb is "if you cannot afford to pay for it, don't buy it!" Most people tend to over-extend themselves when they live beyond their means. Using credit facilities to fund a lifestyle which is far beyond your present income, including products such as credit cards, store credit, hire purchase schemes and the like, is the #1 reason why a majority of Americans are deep in debt today. Of course, it is easy to say that you were lured by the "buy now, pay later" mantra of credit lending companies, but managing debt is ultimately your sole, personal responsibility.
Making an early start
Financial education and money management works best when inculcated at an early age and a majority of today's adults never knew anything about managing finances until they started earning an income and then too, learnt mainly by trial-and-error. Teaching children about the importance of managing their money at a young age will lead to a generation of Americans who are definitely savvier than their predecessors at personal financial management and the responsibility for creating this generation lies in the hands of people like us who are parents or educators.
Saving as a habit...
The importance of this simple rule cannot be stressed enough; again this is a habit which should be inculcated as early as possible. Most of us are very content to live from paycheck to paycheck and for any other expenditure, there is always the credit card! Any Economics or Finance 101 class will provide you with the illustration which compares savings made by two different individuals or the same individual starting to save at different points in their lives. The lesson - the earlier you begin to save, the more money you will have by the time you retire, without any investment strategy or financial wizardry!
Planning, planning and planning!
You don't have to hire a professional to prepare a personal financial plan, neither do you need to be a whiz at accounting! Financial planning is akin to time management or scheduling your chores - begin with a plan for the next month, then extend the same principles to planning for the year and say, five years from now. Estimate your projected earnings if you continue at the level you are now, for the next 5-10 years and the various expenses which will follow as you grow older - a home, your children's education and so on. While planning for the future, plan additionally for contingencies - events that you could not have foreseen or those that are out of your control.
At this point, it is a good idea to start thinking about securing a future through sound investments - insurance, annuities, etc, making your money work for you! Taking the advice of an investment professional at this stage is not only preferable, it is required.
Having read these rules for avoiding financial woes, are you wondering why you never thought of it before? You can still make that start now, there's no time like the present...!