Financial management is a very important skill that can help people better manage their finances and achieve financial freedom. The following are some common sense about financial management that ordinary people should know:
Make a budget: The first step in managing money is to make a budget. You need to know your income and expenses each month to better manage your finances. You can use a spreadsheet or financial software to track your income and expenses.
Build an emergency fund: An emergency fund is a reserve fund for emergencies. It is usually recommended to reserve 3-6 months of living expenses. This will help you cope with job loss, illness, or other emergencies.
Pay off high-interest debt: If you have high-interest debt, such as credit card debt, paying them off should be your priority. High-interest debt leads to higher interest payments, which reduces your disposable income.
Build an investment portfolio: Investing is the key to financial freedom. By building an investment portfolio, you can make your money work for you. Investment selection should consider your investment objectives, time and risk tolerance.
Rational consumption: Rational consumption is an important financial management principle. Before buying anything, you should consider whether it is a necessity, whether there are cheaper alternatives, and whether you can wait for a discount or promotion.
Don’t put all your eggs in one basket: diversification is key to reducing risk. Don't put all your money into the same investment type or company. Funds should be spread across different investment types and companies.
Avoid speculation: Speculation is a high-risk, high-return investment. Most people should not get involved in speculation as it can result in substantial losses.
Learn financial knowledge: Financial management requires certain knowledge. By reading books, taking courses or consulting professionals, you can increase your financial knowledge and improve your investment capabilities.
Check your finances regularly: Checking your finances regularly can help you understand how your portfolio is performing and make timely adjustments. You should review your finances at least once a year.
Long-term investing: Investing is a long-term plan. Don't try to earn quick returns through short-term trading. Instead, think of investing as a long-term plan, patiently wait for your portfolio to grow, and avoid frequent buying and selling as much as possible.
Tax planning: Tax planning is one of the important components of financial management. You should understand tax laws and look for ways to reduce your taxes, such as investing in retirement plans and charitable giving.
Insurance protection: Purchasing insurance is an important step in protecting your financial security. You should purchase insurance that suits your needs, such as medical insurance, life insurance, auto insurance, etc.
Determine your investment goals: Before you start investing, you should determine your investment goals. This can help you choose the types of investments and risk levels that suit you, and make your investments more targeted.
Avoid debt: Borrowing money isn't always bad, but having too much debt can cause your financial situation to become more precarious. Before borrowing, make sure you can afford the repayments and avoid borrowing with high interest rates if possible.
Update your financial plan regularly: Over time, your financial situation and investment goals may change. Therefore, updating your financial plan regularly can ensure that your investment strategy remains consistent with your needs and goals.
In short, financial management is crucial for everyone. By building an emergency fund, paying off high-interest debt, building an investment portfolio, learning financial knowledge, and more, it can help you better manage your finances and achieve financial freedom.