In today’s current economic climate, many households are feeling the pinch. Whether you have been a victim of one of the investment scandals that have recently rocked the headlines, been mCredit: Free image courtesy of FreeDigitalPhotos.netade redundant, or had to take a pay cut because your employer needs to tighten his belt to stay afloat, it is suddenly not so easy to make ends meet anymore.
Many families are wondering how they will manage until the crisis blows over, surviving on what little resources they have at their disposal. The first conscious decision that people often make is to simply stop spending money – but that doesn’t always work. For example, what about when your children both suddenly need new shoes, your computer has crashed, and the refrigerator has just breathed its last breath? Some expenses are so essential that they cannot be dropped.
The key to the successful management of your household finances lies within the expression, “It’s not what you do … It’s the way that you do it.” Have you ever wondered, for example, how Mr. and Mrs. A., both of whom work full-time, seem to always be in financial trouble, while Ms. C., a single mother raising her family on her own, is not rich but definitely manages?
The reason for this is that Ms. C. evidently has a financial plan. She has carefully examined her resources. How much income does she have coming in? What are her regular expenses, such as mortgage/rent, health insurance, school fees, average monthly bills, telephone and cell phone rental, and typical monthly grocery bills? Does she have enough money to cover them? Having always lived on the tightrope, Ms. C. has learned how to plan.
The A’s, on the other hand, have never thought about being in financial difficulties until now. They always covered their bills and ran their home without giving their finances more than a cursory thought. Until recently, whenever they saw an item of new furniture that they wanted, they would buy it without a second glance. Now that they are in a financial pinch, however, they have no idea how to cope.
The first stage in careful financing is therefore sitting down and drawing up a financial plan.
Investing in a Safety Net
Another absolute necessity is putting even a small part of your income into a monthly savings plan. Even if you start off small, your savings will gradually grow. They can then be used to help in an unforeseen emergency, such as unexpected dental work, or stashed for future events such as your child’s wedding. At the same time, take advantage of your employer’s pension plan and life insurance to make sure that you will have something set aside for your retirement.
Avoid outstanding credit card debt
Another way to keep out of trouble is to remember Shakespeare’s immortal line, “Neither a borrower nor a lender be.” Try to keep credit card debts and overdrafts as low as possible, and do not allow yourself to be swamped with unpaid bills. If you can’t pay this month’s mortgage, never put it to one side and forget about it. Call the bank and work out a way to break up the payment. If not, unpaid debts have a terrible habit of coming back to haunt you.
It Doesn’t Hurt to Ask
Making a financial plan or working out the best use of savings or an inheritance can be rather daunting for the average householder. Therefore, another worthwhile investment is taking some time and a little money to speak to a financial adviser.
A qualified financial adviser will help you to maximize your resources and develop techniques to run your finances efficiently. He can objectively tell you how to budget properly and build up your financial safety net. And with his help, you will hopefully be able to steer your ship sensibly out of the crisis and remain afloat.
For more information on why it is a good idea to use a financial adviser, read, Why Should You Waste Your Money on a Financial Planner?
Disclaimer: This article is for educational purposes and is not a substitute for investment advice that takes into account each individual’s special position and needs. Past performance is no guarantee of future returns.