Financial knowledge is extremely important not just for investors and entrepreneurs but also for average households. Families face crucial financial decisions everyday, from budgeting the kids’ allowances, shopping grocery items, saving for retirement, buying a home or a car and up to choosing a school for the children.
Each decision impacts the current and future financial standing of a family. Budgeting and stretching one’s money is essential, especially during these tough economic times. Hence, the following are some useful tips and advice on how to do so.
1) Don’t Spend Money You Don’t Have
The idea of “never spending money you don’t have” is perhaps the simplest personal finance concept ever introduced yet most families tend not to put it into practice. Spending money ahead of time is spending money ahead of your paycheck. It results in huge personal loans and credit card debt.
While some would argue that borrowing opens up opportunities to invest, most families borrow money for non-productive goods, which in effect increases their chances of financial ruin.
2) Live Below Your Means
In order to embrace the idea of “never spending money you don’t have,” you must first know how to live below your means. Basically, people who live below their means think wisely before purchasing a product/service. Patience is a major element of this practice, as people living below their means delay gratification in lieu of more productive ventures.
3) Look for Alternatives
Another great way to budget and stretch one’s money is to look for alternatives – alternative sources of income, alternative brands of shampoo, alternative fast food restaurants, alternative recreational activities and so on and so forth.
Alternatives should not pale in comparison with regards to quality. Alternatives should surpass or at least equal a preferred brand’s quality for a better price.
4) Start an Emergency Fund
Most families who experienced financial collapse during the recent recession have one common denominator – they do not have a substantial amount of savings. A household should maintain an emergency fund equal to at least six months’ worth of expenses. Financial problems will inevitably arise, and preparedness is the key against such roadblocks.
5) Automatic Debit Arrangements
Automatic debit arrangements is a banking program that basically debits expenses such as electric, phone, water, telephone, Internet and other utility bills into the customer’s account. By enrolling in such a program, customers are assured that they are up to date with their financial obligations in order to avoid unnecessary interest and other banking fees.