There are some principles that could help us all develop good personal finance habits. These principles always work but it requires a lot of discipline to be able to stick to them. These are three basic principles surrounding good personal finance habits:
- Living within your means by trying as much as possible to spend less than you make
- Making the Money You Have Work More For You
- Expecting and Preparing for the “Unexpected”
Living within your means by spending less than you make
Living within your means involves spending less than your earnings and avoiding excessive debts and save money. The concept might be easy to understand but difficult to apply.
Living within your means includes knowing where your money is going during every spending whether you are buying a house, paying rent or paying school fees.
Making Your Money Work More For You
Making small changes can improve your savings without having to modify your lifestyle much. Buying your foodstuffs at the end of every month could save you some money than buying them whenever you need them.
You can buy treasury bills or bonds which will bring interest on your money than leaving your money in a savings account which gives very little returns.
Managing your electricity and data usage well could save you some money for future use.
Expecting and Preparing for the Unexpected
Many people claim to not have money to pay hospital bills because they had been “unexpected”. When your gas finishes in the middle of the month “unexpectedly”, many find it difficult to refill.
While we might not know exactly when these events will occur- we all know that these kinds of “unexpected” events do occur, without fail. So they aren’t really “unexpected”.
Anticipate and prepare yourself for these events by starting an emergency fund. This can be an account that offers you some way to stay going and keep you on your feet when disaster happens. If possible, put aside some money from your salary every month into the emergency fund.
It’s important to separate your emergency fund from your usual bank account – its not for investment and it is not for improving your lifestyle. It is for emergency situations. An emergency fund could save you from taking loans that could put a burden on your expenses.