Salient tips

You see, personal finance may mean a whole host of things to people. Personal finance covers a wide variety of money topics including budgeting, expenses, debt, saving, retirement and insurance among others.

Understanding how each of these topics work together and affect each other is important for laying the groundwork for a solid financial foundation for you and your family.

At the very basic level of personal finance you are dealing with a budget; you make money and then you spend that money. Even if you haven’t created a detailed and written budget you continue to budget on a daily basis. The problem that stems from not having a detailed budget is that we are faced with so many financial decisions – it is nearly impossible to keep track of and remember everything. When you create a budget you begin to see a clear picture of how much money you have, what you spend it on and how much, if any is left over. Once you can see the inflows and outflows of your money you can optimise your spending so that necessary items are sure to be covered while cutting back on wasteful spending that will allow you to save money.

After you have created a budget you can begin to see where expenses may need to be reduced in order to meet your goals. For some people this means eating less meat and for others it could mean getting rid of that extra vehicle. Whatever the case may be, everyone has an area or two where money can be saved by reducing some basic expenses.

Even after creating a sound budget and cutting unnecessary expenses you may still find yourself with lingering debt to get rid of – this can sometimes be inevitable for most of us. This reminds me of some important advice. While attending a Debt Crisis workshop which we organised as Bunda College Economics Association (BEA) in 2000, I remember the former governor of the Central Bank, Dr. Elias Ngalande, pointing out that debt by itself isn’t necessarily a bad thing but how it’s used. There are two kinds of debt: good debt (productive) and bad debt (consumptive).

When you borrow money to purchase a home you are taking on a lot of debt, but are also accumulating assets that can increase in value – productive debt. On the other hand, when you go to Chichiri Shopping mall and treat yourself to a shopping spree using a loan with a 35% annual interest rate, then you are inviting problems.

Getting out of debt doesn’t have to be difficult but it is essential in reaching a state of financial independence. The first thing to do when you find yourself in debt is to pay more than the minimum monthly payment. If you only pay the minimum each month it will often take decades to repay the debt and cost more in interest. Once you are paying more than the minimum you should look to lower your interest rate. High interest rates will make getting out from under the debt even more difficult.

Saving is an important habit. Unfortunately many people feel that they simply don’t have enough money left over each month to save.

Finally, you have created a budget, cut expenses, eliminated your debt and have begun to save for retirement, so you are all set, right? You have definitely come a long way but there is one more important aspect of your finances that you need to consider: Insurance. Insurance is important because you have worked hard to build a solid financial footing for you and your family, so it needs to be protected.

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