Some good advice on money matters

The following list is a compilation of various financial advices I have come across over a period of time. Some of these have been of great importance to help me to get on the path towards financial independence.

No matter how much you earn always save a little bit

There is no excuse for not saving money. No matter how much you earn you should always strive to save a little bit. I am not talking about a set amount or percentage. Depending on your circumstances the amount you save may change periodically.

Nevertheless always save a little, no matter how little.

If you have bad debt such as credit card debt, then strive to always pay a little more each month. As you do that you are saving on interest that would be charged to your account.

Know the difference between needs and wants

This advice goes towards wise spending, especially when you are working towards achieving a certain goal.

You have to be able to differentiate what you need from what you want. It is actually simple. In summary, you need food, clothes and shelter. Those will cover the basics. Take a step back and think, do you really need that expensive coat, or shoe or watch. Most people have those basics and if you really think hard you have all you need and probably quite a lot of what you want.

Have fun too

I decided to position this advice right after the one regarding your needs and wants. It is important to have fun too. Don't give yourself too much pressure if everything is going well, don't relax too much either.

I like to enjoy things that don't cost a lot such as spending time with m family on the beach, or going for a walk, or simply playing with the kids, renting a movie and having a night in, etc...

There are many ways of having fun that won't cost a lot, or that won't cost anything.Don't live pressured, remember to relax, it is vital to you and your family.

When you buy something, ensure that you buy a quality item

When you buy something ensure that you buy the best item that you can. Buying items that are not of good quality will probably mean that you will have to purchase it again in a short period of time, there fore spending more money that you would otherwise.

Don't pay interest purchasing depreciating assets

Most of us will need to buy many things that loose value. The couch, the car, electrical appliances, clothes, shoes and others. When buying those items ensure that you don't pay interest for the purchase.

Don't borrow money to buy a car and don't buy anything on your credit card that you cannot pay before interest kicks in.

I usually say that when you purchase things on credit card or borrow to buy depreciating assets such as cars, they are taking your money while you sleep.

They do, think about it, the interest is charged to your account usually during night calculation done in the bank computers, so you actually loose money while you sleep.

Buy real assets

This advice is the very opposite of the previous one, when you buy something buy an asset.

An real definition of asset is something that puts money in your pocket. Your personal car does not do that. Following are some real assets that put money in your pocket: dividend paying shares, positive real estate investments, a business that generates money, some say that even your education is a real asset because you can use it to earn more money, etc...

The idea is simple, do you need what your are buying? Is the item you are buying a real asset?

Avoid using your home equity to pay your credit card debt

I see many professional financial advisers saying that your should use your home equity to pay off your credit card. I don't think that this advice should be always followed.

I believe that it is more important to pay the credit card debt though other means rather than your equity. If you effectively manage your finances and eventually pay off the debt you are better of many ways.

• Learning how to manage your finances - if you find other ways of paying the debt, you are actually managing your finances in a wise manner which can go a long way once you finish paying the debt.
  

• Taking money from your home equity can be a short term solution if you continue spending on the credit card.

• The money you borrow from your home equity is at first cheaper than the credit card but in the long term you will continually pay interest to the bank, so in reality it is also costing you a lot.

Before closing on this topic, if you are in financial difficulties and need to get rid of the credit card debt, then consider using your home equity to do so. This may help you to avoid a disaster. But remember, your mortgage repayments will go up and you need to have the cash flow to be able to afford the higher payments.