4 ways to avoid financial difficulties
Nobody is perfect and we all experience financial difficulties from time to time. If you’ve ever found yourself short of cash or you’re tired of living from one payday to the next, here are some simple tips to avoid getting into dire financial straits.
1. Budget - A budget simply ensures that you don’t spend more money than you make. Keeping track of your spending can help you decide if you need to change what you spend money on. A nice approach to budgeting is the 50-30-20 rule.
- 50% of your income is spent on the “must haves” – these are expenses you can’t live without. Housing, food, utilities, school fees, insurance – these are critical and while you can try to reduce the amount you pay for groceries, for example, you still have to buy them.
- 30% on “wants” – new clothes, eating out, a night at the movies etc.
- 20% on savings and debt. If you have a debt then you should put all of this 20% against it. It’s a false sense of saving if you put your money into savings accounts while you are also accruing interest on your debts.
2. Income protection insurance - Have you thought about what would happen if you were unable to work for a period of time? If you lose your job, are injured, sick or otherwise unable to work this can place a huge amount of stress on you and your family. Income protection insurance allows you to receive a proportion of your full salary for a period of time until you are able to work again.
3. Pay down debt - Wherever possible, make regular payments on your debts. Paying more often than required means less interest over the long term and more money in your pocket. Even paying the same amount each month on your mortgage, but paying it weekly or fortnightly means you pay less interest overall. The same is true of credit cards and other loans or lines of credit.
4. Set financial goals - Sometimes it’s difficult to save money without having a specific goal. Whether you want to pay off a car, save for a holiday or buy a new kitchen, setting goals for the next 1, 3 and 5 years can give you a yardstick for your progress. Even using wall charts or writing your goals on a chalkboard or stuck on the fridge can give you a sense of achievement and make sure you’re heading in the right direction.
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