Effective use of money means to obtain the greatest value out of every dollar in your possession. It is to maximize the value that you spend and to maximize the return for your investment. There are five ways to do it:
- Know your financial situation: Find out more about your income, expenses cash flow, assets, liabilities and net worth. Identify areas where you can generate more income. Look for ways to reduce expenses. Turn your assets to earn passive income. Reduce your liabilities such as car loan and housing loan. Get rid of debt as soon as possible. Do it yearly to check your net worth to determine the position of your wealth. Are you getting wealthier or poorer?
- Pay yourself first: This is the starting point to build your wealth. When you pay yourself, you can accumulate money for an emergency fund, save for the purchase of big-ticket items and also save for your children’s education and your retirement.
- Smart spending: Extract the maximum value out of your spending. Shop during sales and promotion. Use coupons whenever possible. Look for quality and durability instead of just brand. Spend only on the essential and forget about your wants
- Make your money work harder: Don’t allow your money to sit idling away in the bank. Invest prudently to grow your money. However, don’t put all your eggs in one basket. Seek expert advice if necessary. Read the financial section of newspapers daily.
- Protect your wealth: Look after your health to protect your earning power. Good health provides you with energy and stamina to do your best at work. Take up adequate insurance to cover yourself in case of accidents and critical illnesses. Ensure your property. Take advantage of tax relief to reduce your tax liability and draw up appropriate will to distribute your wealth according to your wish
The aim of effective money management is to promote the growth and conservation of your wealth to achieve financial freedom
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