Do You Have What it Takes to Be Financially Independent?


Having money is a little like having food. When you have a desire to own something, you spend your money, and when you are hungry, you eat your food. But what if you’re hungry and you’ve already eaten all your food? What if you want something and you have no money to buy it? In those situations, you might find yourself thinking, I wish I hadn’t wasted my money on something I really didn’t need or I should have saved some of that food.


This is where the concept of rationing — using sparingly — comes in. If you ration your food, you’ll most likely always have something to eat. If you ration your money, you’ll most likely always have some to meet your needs. The word for rationing your money is budgeting.


You can acquire money in various ways: by working, receiving gifts, selling your possessions, and so on. One way to budget is to pay yourself first. That is, save some of your money every month before you even contemplate spending it. Even if you set aside just $20, you’ll have $240 saved by the end of the year. You’ll have less money on hand throughout the year, but as a result, you’ll probably make wiser decisions, and you’ll have a reserve for purchases and unforeseen bills.


Money skills and habits are all about planning and priorities. If you look after your money, it will look after you. When you have less money, you tend to make smarter choices.


The rule of thumb for money management is, if you can’t afford it, don’t buy it. You must distinguish between it being a need or a want, and if you must have it, you should shop around for a cheaper price or a less-expensive alternative.


If you do decide to make a purchase, you can use a credit card. But understand that when you do, you’re actually borrowing someone else’s money. If you repay the money immediately, there is no charge. However, if you don’t pay off the balance, you’ll owe interest on it. In some cases, the interest rate can be as high as 40 percent, which means that for every dollar you’ve borrowed, you’ll owe $1.40. If you end up not repaying in full, you’ll be charged interest on the outstanding balance, a situation that could get extremely expensive. Payday loans are also an option, but again, you’ll be socked with a high rate of interest and your debt can grow quickly.


Whatever else you do, always pay your bills on time. If you borrow something from someone, return it when you say you will and in its original condition. If not, what are the chances that he or she will lend you anything again? Financial institutions are the same. If you borrow money, they expect you to pay it back at the agreed time, otherwise there are penalties — for example, interest. Businesses rate you on your money-management skills, an assessment that ultimately becomes your credit score. The more financially responsible you are, the higher your credit score and the better the interest rate you’ll be offered when applying for a loan or a credit card.


People tend to spend more money than they actually have. A person’s expensive car, house, jewelry, and designer clothing do not always reflect his or her net worth. Net worth is what you’re actually worth once you add up all your assets and then subtract all that you owe. Bear in mind that bling does not necessarily indicate wealth.


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