Every aspect of life, in one way or another, demands financial consideration. Money is therefore paramount in our lives; it is required to achieve almost all of our desires and goals. As economists would say, “money is a medium of exchange, a store, and measure of value, and runs the economy”.Here are six things everyone should know about money:
- Have a budget - Accounting for your money is very important. Planning and tracking your expenditure for regular and unplanned costs is key to sustaining your lifestyle, and knowing how much you have each month in order to grow your wealth. Having a budget is hence critical to helping one plan their finances and avoid unnecessary expenditure and attain financial freedom.
- Keep an Emergency fund - As with everything in life, emergencies come up, whether it be health problems or family emergencies, among others. Financial planning involves creating a buffer for such unexpected happenings and the standard is to have a buffer for at least 3 to 6 months of monthly expenses in short-term investments in order to avoid having to borrow expensively to attend to an emergency.
- Start saving and investing early - A key financial goal is planning towards retirement, no matter what age you are. Start by considering the lifestyle you want when you retire, how much it will cost per month (even an estimate), add for any unplanned surprises, and work backward towards investing every month to reach your goal. Failure to save early is detrimental to your progress towards financial stability in retirement. Saving is not determined by the amount of income one has but rather by the discipline of always putting part of your earnings aside every month.
- Let your money work for you - Regular investment every month grows your wealth, so your money is making money for you. As with any investment, have a diversified portfolio, with a mix of growth investments in equities and alternative investments, and income investments in fixed income solutions or structured products. If you want to earn more money, make your money work for you.
- Never allow debt to pile up - A reasonable amount of debt is good, though accumulating debt can be dangerous. Debt is not bad, especially if taken to fund investments such as an education or buying a house – that is good debt. Bad debts are those that do not help you build assets, or those that are not part of your goals, such as credit card spending on unnecessary luxury items, or incurring debt for present consumption. Avoid bad debt, and pay back debt consistently always use up to one-third of your monthly pay towards debt repayment.
- Set your goals and priorities right - Discipline is key to attaining financial security. One should totally refrain from impulse spending. Expenditure should always be planned and prioritized. If you do not set goals and prioritize well, you will end up making all the wrong decisions and wondering how your money went to waste. Get your priorities right and channel your money in accordance with those priorities.
Overall, money is an important tool and the key is to use it wisely, with set priorities and goals in mind. Always budget, keep an emergency fund and never get into debt without proper planning.