One of the essentials on money management for both individuals and businesses is curtailing risk or risk mitigation. There are many things in our lives that are not in our control. However, by anticipating a few potential problems and preparing for them, it is possible to reduce the severity of the negative events if and when they occur.
When it comes to personal finances, one should be have a safety net in place to help reduce the ill effects of potential illnesses, job losses, damage to property or appliance, or even the death of the main provider for the family. While none of us desire any of these negative events in our lives, most encounter a few of them any some point. In order to successfully negotiate these events, one should have a Plan B for the finances.
This means that any person with financial dependents should have a term life insurance to help the dependents financially for the possible loss of income. To ensure that the dependents are adequately provided financially, the person should clearly nominate the dependents and make a will or create a trust fund to ensure that the dependents do not face financial hardship.
Similarly, every person should have adequate heath cover to ensure that illnesses and hospitalization do not cause financial hardship over the physical pain and psychological worries that accompany them.
Apart from this, those who own property should ensure that this is adequately insured. This is because, for most people, their house is their primary investment. Any damage to the house can lead to financial losses that might be difficult to recover from without proper insurance.
While it is essential to have adequate insurance cover, proper money management also requires one to shop around for the best cover. Each insurance a person obtains must provide for all the possible contingencies and also be priced reasonably. For instance, while it is important to ensure that the life term cover will provide financial security for the family, an accident insurance that provides a greater sum assured if the insured person loses their life in an accident does not make financial sense.
Most prudent managers of money are aware that certain types of credit are very expensive. For instance, credit cards charge a high rate of interest if not paid off in full at the end of a payment cycle. In order to reduce such interest burden, one should always have an adequate emergency fund. This should cover three months of living expenses to help tide over wage loss because of ill health or job losses.
Modern life involves everyone possessing a variety of appliances and gadgets that are expensive. Almost everyone owns a car, household appliances, and electronic gadgets such as a laptop and mobile or smart phone. These are all expensive to replace, and saving regularly toward a fund for this will mean the difference between paying for the next appliance with your own funds and paying a high rate of interest to purchase it.