Financial management is not an easy task. Most of us do not even know where to begin. The truth is that we are not well-versed with the concept of financial management and financial crisis. We spend and save in the same way as our family and friends suggest. We do not research which investment plans or insurance are good for us; but ask people around us. And that is the main problem!
Now, you must be wondering, “how is taking financial advice from family and friends wrong?”
We are not saying that taking financial advice from friends and family is always wrong, but you need to manage your finances according to your financial goals. Let us put it directly- you have not been feeling well since last week. Firstly, you took some over-the-counter drugs, but you still did not feel better. So, what would you do next? Would you consult with a doctor? Or would you ask your friends or family- which medicine should I take? We are sure you will not take your health lightly and consult a doctor. Right? So, why would you harm your financial health?
Though we make various financial mistakes, poor investments and bad monetary management have the most adverse effect on financial health. The personal financial crisis is not limited to one thing, it begins with unnoticeable spending habits like overspending, and it keeps getting worse with time.
Read more about how spending habits can put you in trouble.
So, how can you avoid a financial crisis?
Yes, we understand that it is easier said than done. Financial management comes with many twists and turns, but those twists and turns are manageable if you prepare yourself beforehand. The idea is to manage your finances in a way that prepares you for future financial emergencies.
Let us see the ways you can avoid financial crisis:
An emergency fund goes a long way
An emergency fund is a base for financial security. It can keep you on your feet while you face the unforeseen. If you have not yet begun, you must start saving at least 10% of your monthly income. It acts as a financial cushion in tough times and helps you get through inconvenient situations. It might feel that building an emergency fund is difficult, but it is never too late to start saving for your financial future. You cannot control every situation, but you can subside its effect and be in a better position.
Control is the key
When we talk about control, we are not talking about taking control of everything at once. It is a slow process; you can start by making minor changes in your spending habits and hit bigger targets to become financially sound in the future. It is of utmost importance to control your spending habits and expenditures, especially if you know that you are making unnecessary expenditures. Make a budget and stick to it, be sure that you do not lose track in between due to temptations. Look at the bigger picture and save wisely!
Prioritize. Buy. Evaluate.
Humans tend to go overboard when it comes to shopping. One reason behind the personal financial crisis is overspending. So, how can your control overspending? The first thing you need to do is prioritize your expenses. Write down all your necessary expenses, make a budget according to them, prioritize the expenses, analyze and evaluate them if you are overspending monthly. It will help you to shrink your spendings and save more for future emergencies.
Track it all
One main problem that people face after budgeting is analyzing and tracking expenses. Yes, we understand that keeping track of your expenses is difficult, but it is necessary. Not keeping an eye out for unnecessary expenditures can put a financial burden on you. It helps you to figure out your spending habits and prioritize the unavoidable expenses. To sum it up, tracking your expenses can indirectly help you understand your expenditure and avoid a personal financial crisis.
Briefly, your spending habits can give you a clear picture of your finances. One way to avoid a personal monetary crisis is to prepare yourself for unforeseen circumstances and better money management. Once you start analyzing your expenses, spending habits, and monthly budget, you learn to manage your money better. You cannot predict the future, but you can be one step ahead in managing your finances.