People generally are lazy and do not want to give their finances some healthy thinking. Whether it is a small start up company, household financial analysis and planning or any other aspect that we can relate to money. We only think about start planning our finances and do a bit of budgeting and start analysing our near and far future risks once we are buried deep into a financial crisis(Current financial crisis has proved that even Governments and large Corporation are no exception to this behaviour!!!). Cutting long discussion short, if we force ourselves not to commit below mentioned critical financial mistakes, it would definitely save us a lot of money.
1. NOT CALCULATING, FORECASTING AND MATCHING ONE'S EARNINGS AND EXPENSES --NOT PLANNING
This is a very general trend that people tend not to engage in calculations before when they really have to. Secondly, even if we do spare some time to do calculations of income and expenses for the current month, we do not forecast. We need to remove this behaviour and should start planning.
The process is very simple! Calculate your earnings for the current month and then calculate current month's expenses. Now incorporate the expenses you postponed from previous months, e.g. credit card or utility bills any loans you have taken from friends or bank loans you have not paid recently. You will have a Net Earnings Figure. Repeat the same process for coming 3 months at least so that you know how much you would be left with if you pay portion of these pending payments and your regular expenses.
2. NOT PRIORITIZING TRANSACTIONS
After doing all the necessary good work, people just jump into making decisions about what to pay first and 'very importantly' how much to pay.
Make a small priority list of payments. This hierarchy can be almost universal.
1. Pay/save for your needs first.
2. Pay loans which are interest based as they eat up your income to a great extent.
Now how much of these loans you should pay as an installment may or may not be in your control. If its a fixed monthly installment, you have no choice but to pay. But if you have, let's say, a credit card outstanding and you can opt to pay a minimum payment but you have few bucks extra, clear off the principal amount as much as you can.
3. Pay loans which are not interest based, let's say from friends, family members or any organization, and try to delay their payment further if it is possible by any chance.
4. Pay yourself! Yes, this part is very important that you should save a reasonable portion of your net earnings so that you can tackle any probable future financial crisis.
5. Pay for your luxuries. Although, I would strongly recommend that paying for luxuries when you have loans pending should be avoided. But if you cannot help it, AND you have reasonably paid all items mentioned above, pay last for your luxuries(Still Not Recommended if there are loans outstanding or credit card interesting bearing payments!!!)
3.NOT DECREASING EXPENSES TO INCREASE NET INCOME
People generally do not think on the lines that we can increase our net income ourselves (if our business income is not increased or salaries are staying same) by decreasing our expenses.
If our income is stagnant at one point, we should be more inclined to decrease our un-necessary expenses, like luxuries. We can avoid costly luncheons and dinners. We can be less brand conscious and put extra efforts in shopping and try to get best prices. We may need to shorten our list of 'so-called' necessities. For example, major necessities are grocery, utility, food and car, and children's fees may also be included(if you have children). Now include everything else into the category of a luxury for time being if you are short in cash. Even reduce the amount that you spend on necessities by consuming less electricity, making lesser and only necessary phone calls through your land line and mobile, purchasing a fuel efficient car if you don't have one already etc. So you can surely increase your net income by decreasing your expenses.
Because Net Income = Earnings - Expenses ---Remember!!
4. NOT STAYING UPDATED ON THE CURRENT MARKET TRENDS
We mostly believe that only finance/accounts related people need to have a look at the current market conditions and trends, which is absolutely wrong. These market trends, whether it is the value of our currency in specific or dollar in general, whether it is gold or oil price, whether these are any rules and regulations passed by the government, they affect us directly or indirectly. So we should develop a habit of giving few minutes of our daily routine to the business section of the newspaper or any web portal we read for News.
5. FINALLY, RESIGNING TO FATE ONCE IN A FINANCIAL CRISIS
When we are in a financial trauma, there is a general inclination that we get so messed up that all those plans we had set up, we stop working on them and make stupid decisions. NO! this should be absolutely avoided. If there is a way into a problem, there is always a way out!! We might have to redesign our plans, redo the calculations and revise our expenses, but we can always get out of a financial crisis, sooner if we plan again.
So no matter whatever the situation is, make financial planning, general analysis, and information gathering a part of your routine so that when tough situations may arise, you are ready!!!
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