Avoiding Money Management Mistakes
1. NO SPENDING PLAN.
The "where does the money go?" question
frequently comes up because of spending on a day-to-day basis, without
any sort of plan for taking care of needs and wants. Here's where a money
management program can help you spend your money wisely, to reach your
goals.
First, set up priorities: know your
regular expenses; determine what your goals 
are in relation to short and long-range aims. Take critical look at your
expenses and weed out those that don't give real satisfaction.
2. NO CASH RESERVE.
Financial experts recommend that
every family have a cash reserve of at least 50 percent of their annual
income. To acquire this means developing good saving habits and self-restraint
in spending. There is a definite need to save so you have an emergency
fund when unexpected expenses arise.
Knowing you have a safety margin
of savings will also give you a feeling of security and greater peace of
mind. And don't forget a savings account enhances your credit standing.
3. TOO MUCH USE OF CREDIT.
Using credit can be a real help
or a trouble spot, depending upon how you use credit. The biggest problem
usually is that families over-extend themselves and become committed to
larger payments than they can meet.
Credit terms differ, too. Shop carefully
for credit - as carefully as you do for goods and services. Be sure time
installments fit into your budget and don't take on more than you can handle.
Know the cost of credit terms. The real cost. Keep track of expenditures
made with charge accounts or credit cards, so the bills won't come as a
big surprise to you.
And pay on time to keep your credit
rating solid.
4. NON-CONSTRUCTIVE USE OF WINDFALLS.
You receive a tax refund, a bonus
or raise, perhaps an inheritance. Most families are inclined to spend the
extra money on luxuries they wouldn't ordinarily consider. And poof, the
money's gone.
There are many ways to put "windfalls"
to constructive use. Add pay raises to your savings before you get in the
habit of spending the extra money. Use refunds or bonuses for needed large
purchases, such as major appliances. You'll also save paying out interest
charges.
5. NO PROVISIONS FOR LARGE EXPENSES.
We all have large, predictable obligations
that come due at irregular intervals during the year. A large, forgotten
insurance premium or tax bill can cause financial chaos if you've neglected
to accumulate sufficient reserves.
Take all your big items and divide
the total by 12. This 1/12th should be reserved every month against the
time those bills will be due.
6. UNDERESTIMATING THE COST OF
OWNERSHIP.
The original cost is sometimes not
the only cost of ownership. This is especially true of an automobile. Many
of the costs are obvious but some get overlooked until we collide with
them, head on. If a car is bought on an installment basis, monthly payments
are just a small part of the cost of operating it. Figure on all the costs.
Operating expenses are: gas and oil , repairs, maintenance, tires, insurance.
Other costs include registration, license, parking, tolls, etc. In addition,
a new car costing RM50,000 depreciates in value by about RM5,000 during
the first year. While depreciation is not an out-of-pocket cost, it does
become one when the car is traded on another one.
7. SPENDING LEAKS.
Impulse buying - frittering away
small amounts here and there on "little" things - can add up to a surprisingly
big amount. Write down every cent you spend for a week and take a good
hard look at your spending "leaks." Then try to control these trouble spots.
Avoid shopping for groceries when
you are hungry. You'll buy more of those tempting goodies that can run
up your bill.
Avoid "killing time" in department
stores. (You're sure to come away with something you hadn't planned on
buying.) Use an allowance and keep within it. Once you can resist the temptation
of spending "small" amounts, you'll have more money for the things you
really want.
8. CARELESS SHOPPING HABITS.
There are always pressures on us
to buy things. Our wants are greater than our needs. And advertisers help
exert this pressure. This leads to purchasing things we don't really need
and to buying without comparing values and prices.
Before you buy, know the dealer and
the store's reputation. Read labels, understand warranties and contracts.
Avoid pressure tactics by salespersons.
9. NOT SAVING SMALL AMOUNTS.
Don't be discouraged if the amount
you can save looks pitifully small. Believe that little acorns do make
big oaks. Ten ringgit saved every week will be more than RM1,000 in less
than two years. Does that seem a long time? It will go faster than you
can imagine. Remember how quickly the past two years sped by?
10. CAN'T WAIT ATTITUDE.
This money management mistake hits
young people the hardest. And is the cause of much unhappiness. They often
want to start off at a level that it may have taken their parents twenty-five
years to reach.
The "great Malaysian dream," as portrayed
by movies, television, and magazines, is beyond the financial reach of
most families and is never reached by overusing credit.
What is needed is more of a "save
now and buy later" approach. Plus, a money management
plan to help get the things wanted as soon as possible. |
