A crucial aspect towards attaining financial freedom is to be able to effectively manage our income as well as our expenses. To be able to do this we must be able to save and strictly follow budgets, manage our debts and evaluate how we spend money on insurance, banking and income taxes.
Taxes – Quite a huge chunk of the money we earn goes to the government through taxes. It is therefore important to understand how tax is calculated so that we can be able to determine in advance how much we shall receive. Similarly, it is important to note that not all forms of income attract taxes and therefore an individual should be able to know which incomes are tax exempt. In addition it is crucial that an individual understands how to reduce his/ her tax bill through tax deductions, tax offsets and salary sacrificing.
Budgeting- A budget is an important tool towards proper money management, as it enables one to make a list of all expected incomes against the proposed expenses. A budget helps in checking spending leaks as one is able to see clearly which items he/ she is spending huge amounts of money. If a person’s income is more than the income he/she should result in saving more. On the other hand, if expenses are leading him into debts, he should reduce his expenses as well as source more ways of earning more income.
Saving – It is only through saving that an individual is able to reach his financial goals. While saving, one should establish his goals laying down his priorities, cost, the time frame and how he wants to achieve that certain goal. Savings goal calculator enables an individual to work out realistic and easily achievable goals. In addition an emergency fund is important as it helps one to stay on course even after an emergency occurs. However care must be taken not to divert this fund for other uses. Emergency funds should be about the total expenses for three months.
Banking – It is important to evaluate the available bank accounts so as to decide which bank account is effective for one’s needs. However before engaging on the numerous offers by the banks, it is important that an individual is aware of the government guarantee on deposits, what to expect from your banker as well as how to lodge complains in case something does not go as per the expectations.
Donating – it is necessary that we help the needy in the society through donations. It is important to ask the following questions: the cause which it supports, where is it based, how does it use its donations and whether the donations are tax deductible.
Insurance -This is an important aspect as it seeks to return an individual to his financial position before an event occurs. An individual should be careful in looking for an insurance partner ensuring that he understands all the terms of the policy before engaging to sign up. He should check the costs, easy payments of premiums and easy launching of claims in case of an accident.
Managing debts – Although sometimes debts are inventible, it is important to know how to mange them by making timely repayments or seeking for loan adjustments in case one finds it hard to make the repayments.
