1. Don’t Buy What You Can’t Afford
We all want that designer sweater, leather handbag, or cute sports car, but most of us just can’t afford to make the purchases. There’s a simple solution to this dilemma. If you can’t afford it, don’t buy it. This is often the easiest point to understand, but it is one of the hardest to implement when all those goodies are staring you in the face and all your credit companies are telling you it’s OK.
2. If You Can’t Pay Cash, You Probably Can’t Afford It
In our credit crazy world, amassing debt no longer carries a social stigma. Everybody has a car payment, a house payment and credit card payments. Well, remember what your mother said about everybody jumping off of a bridge? Just because “everybody” is doing it, doesn’t make it a good idea.
Buying something you can’t afford now, especially when the economy is unsettled, can double the pain of paying later. For example, if you purchase a $450,000 home today and the market goes into a slump and devalues your home by $200,000, you will be paying the bank twice what the home has come to be worth. Just because it was easy to get the credit to buy that home, doesn’t mean it was the right time for you to buy in.
3. Paying Interest on Anything Makes Somebody Else Rich
When you pay interest on a purchase, you are overpaying for that item for the luxury of getting to use it now. The simple act of paying interest means that the price you are paying to make the purchase is greater than the sale price of the item. You are giving away even more of your hard-earned money in order to own that item than the manufacturer thought the item was worth.
For example, if you buy a car for $25,000 with a loan at 7% interest for five years, in the end, you will pay almost $30,000 for the car. Once you factor in depreciation, you’re left with a very cheap car that cost you thousands more than it should have.
4. If You Are in Debt, stop Spending Money
Sometimes, such as when purchasing a home, the cost of the item is so great that you simply cannot afford to pay cash. This should be the exception rather than the rule. When it cannot be avoided, you need to close your purse and stop spending.
Getting yourself further it debt doesn’t help your financial situation. Making a realistic budget in this case is the key to success. Once you know how much you’re actually spending on those daily trips to the grocery store and coffee shop, you’ll be able to find room to cut costs realistically.
5. Don’t Count on Somebody Else to Save You
In times of economic uncertainty, people often think the government will be able to help them, but unfortunately this is often the time when the government has the least amount of money and freedom to help its own citizens. In most cases, the government won’t save you, so you’ll have to save yourself.
When the economy is in a downturn, you can’t just look at what you are spending, you also need to look at where the money is coming from. Your employer is facing the same difficulties you are: trying to make bill payments, balancing the flow of capital, all while sales are slowing. Just like you, your employer will be looking to reduce its costs, which could be in the form of layoffs.
You could be in big trouble if you haven’t planned for this possibility. The plan here is to start saving now for that eventual rainy day, and prepare an emergency fund for yourself. If it is too late to start saving and you already need the money, many financial institutions will let you defer a payment or two if you prove you have a smart financial plan to eventually pull through.
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5 Tips for Surviving Tough Times
The increased easy access to credit in the commercial banks, mortgage institutions, and stock market and pension institutions in Nigeria promises enhanced growth for the economy. This is because consumer demand in a country drives economic growth.
Effective demand they say is only possible when there is the ability to pay for the goods or services desired. Since demand can only be effective with money, it is therefore no surprise that as the economy begins to record modest growth, the demand for money is increasing at the national and personal levels. Money is therefore a tool for demand in the hands of all economic agents, be it households, companies or the government.
Everybody including the wealthy people keeps seeking for more money to finance one form of expenditure or the other. With the budget of Nigeria increasing every year, proposed to be N2.7 trillion in 2008, it is evident that even the country is spending more money every year.
Facts indicate that different individuals and governments have different motive for demanding and spending more money. Motives for demanding money are said by economists to be varied from transactional to precautionary to speculative. All three motives involve spending, but the type of demand expenditure makes the difference especially as it concerns wealth creation or capital accumulation.
The expenditure on investment also known as the speculative demand for money usually brings in returns for the expender and it is usually from accumulated savings because, such expenditures involves large amounts that may not be easily accessible by a single individual except by means of borrowing.
Companies expend in overhead costs, which complements their productive activities and therefore serves as an indirect investment while governments also spend on capital and recurrent fundamentals.
The lifestyle of most people however prompts them to spend more money on food, more recharge cards reported to be high in Nigeria, education (children and wards), health care, transportation (fuel), health care, flamboyant weddings and parties amongst others.
Tony Adache, a civil servant, spoke on the motive of his demand for money, to him money is for spending and spending is part of life; no human can live without spending on food, transportation, shelter, and so many other things. According to him, one is either spending or another person is spending on one.
On whether he saves for investment purposes, he categorically said that he would only save after meeting his needs and those of his family and that his income is not even enough for his needs talk more of investing.
Chuks Azu, a trader, said he does save for investing, but that most times one need or the other comes up that he spends the money on, in his words ” I want to invest but I end up not investing because of many needs I have, I use my little savings on them.”
Chuks Okoro, a private sector employee, says he does invest part of his income but not habitually because of his numerous responsibilities. He said that many Nigerians want to save for investment purposes but end up not doing so due to high cost of living in the country and the social structure of the country that increases a typical worker’s dependents to include extended relatives.
Ayo Gbemi said:Â her experience with money is multifaceted “I thought I needed more money to be able to invest but I can say, I was doing better when I was with my former company where I earned less, more money, more things to spend on, I hardly save or invest now”.
The situation with other individuals indicates hardly saved for investment as to them, it is only when their income is increased that their demand for money will include the investment motive. In essence, their investment expenditure or speculative demand for money comes after everything else and though they have interest in wealth accumulation, are not able to meet it up in their expenditure pattern.
The demand expenditures for money on basic needs although necessary, does not add to the expenders string of assets. It is even worse when the money spent on such consumption is from credit facilities. As Robert kiyosaki, Author of “Rich Dad Poor Dad” puts it; such expenses do not put money in your pocket. This underscores the importance of the motive for every demand for money.
Hence, financial experts recommend paying oneself no matter the levels of income to be able to make speculative expenditures that will bring in returns to the expender.
Economic watchers also assert that Nigeria’s access to credit evident in the recent $50 billion loan from China and increase in the bond issues will be effective when such monies are spent for infrastructural or for growth inducing purposes. Apparently, the motive for the demand for credits or loan from the microfinance banks and other bodies available to give such funds is most important.
What are your motives for demanding money?
