Not only financial problems experienced by some people with a small income, but also a big income people might also have lot of debts in their account. Common root problems of how to manage your finance well is not measurable.
In fact, people need good financial planning. The reality is both single and married people have a problem in increasing monthly expenditure but incomes remain stagnant. Number of factors need to be identified in advance in order to measure the financial condition.
Debt
Reduce debt from your consumptive and non-productive activity. The Debt is divided into the productive and consumptive. Productive debt is when the product you buy would potentially give you money in return in the future. For instance, if you buy a house by credit in hoping that the house’s value will continue to increase and the price will be higher in the future. Another example is when you buy a camera by credit however the camera is used for the photography business. The products you buy by credit generate money from certain number of projects you run is called productive debt.
Net worth
Ensure you have a positive net worth. That means the assets minus debts is in positive results. You have to see the assets and not just luxury goods owned. Assets said to be positive if the value is still good within next three years.
Cash flow
Good cash flow is your revenue minus expenditure is at a positive value. Therefore if the expenditure has been excessive, look for additional income. Take advantage of your hobby to gain some bucks.
Emergency Fund
Prepare some funds to be allocated separately to meet the needs of all highly emergency or urgent situations. Magnitude of tactical funds varies widely at each person. If you are single, the amount of emergency fund should be 3 months of your main salary. If you are single or married but 2 dependent persons, the amount of emergency fund should be 6 months of the main salary. For dependents of more than 2 persons, the emergency fund should be 12 months salary.
Investment
It would be more advantageous if you allocate some funds for investment other than only for life insurance. So what kind of investment would it be then? Before you choose, you should separate in first is some amount of your income for the emergency fund in accordance with your financial condition. Then you can allocate funds for investment in accordance with financial ability. The choice of investment instrument depends on the needs and goals such as whether it would be for short, medium and long term of investment. Is it to buy assets (house or vehicle), preparing children education funds, or maybe for your pension funds. If you already determine some of those factors, you will find the right investment instrument at more easily.
By recognizing some measure of financial conditions, you can recognize the root of the problem why your monthly financial is always at a deficit. That way, you can find financial solutions that are more accurate and match you well. If you are still have problems, the consultation with experts might help you.
