How to prevent a financial blunder

The definition of a personal finance crisis might differ from person to person. The balance between your desires and your spending ability is what determines your financial health. It is essential to identify common financial problems that you may face and plan for them so that you sidestep potential financial crises.

What conditions can be classified as a financial disaster? Are your spending habits taking you towards one? How can you avoid a financial disaster without being too harsh on yourself?

Does this mean that you give up today’s enjoyment for tomorrow’s security? Certainly not. It just means that you take a realistic view of your circumstances and decide upon spending limits giving due consideration to your needs and your income, and accommodating your desires to a certain extent.
Here are some simple ways to prevent a financial blunder:

* Draw up a priority list for expenses, make a budget that will accommodate both needs and reasonable desires and spend accordingly. You should also plan for emergencies, and invest in proportion to your income.

* Investments are provisions for your future; make them wisely. Diversify your portfolio to minimize your risks. Of course not all sectors on your portfolio will bring in similar returns but it is a safe practice to spread your money over different sectors.

* As far as expenses go, you should be level headed while spending. Limit your credit card use, say, in emergency situations when you need to buy essentials and are caught without cash. It is easy to indulge oneself buying stuff with a credit card, but do spare a thought for the bill that will reach you later. It can be quite a sobering thought. Control over credit card usage can make a tangible difference in personal finance.

* Banish the ‘enjoy now, pay later’ concept from your life. This will give you a realistic view of your spending abilities. The peace gained from a debt-free situation is sure to outweigh any disappointment that you feel from not having indulged all your spending whims.

Can savings and investments happen regardless of levels of income? Can the very rich head for financial crises due to unwise spending? What do you do to mitigate the risks in your life? Does insurance play a major role?

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