People can be classified into two – the spenders and the savers. Of course there are stereotypes cast for both extremes. The spenders would use up all of their income (and even beyond their income by using credit cards) in order to buy everything they want. You know a person is a spender if their first instinct when they receive their salary or a bonus is to go shopping. On the other end of the spectrum are the savers, who sometimes have the unfortunate reputation of being misers.
Wise financial managers are somewhere in the middle of the two extremes. Of course, it doesn t make sense to just save up every single dime you have and forego pleasures you can afford such as a simple vacation simply for the sake of saving. It also doesn t pay to spend every single dime as if the fate of the world depends on your shopping habits. The best approach when it comes to money is to save a little and spend a little. You ve probably heard your grandmother remonstrate you with this adage when she found out you bought a flashy car. In today s materialistic world, you are bombarded with commercials that tell you to buy this and buy that, regardless of whether you need an item or not. This is the reason why some people are living beyond their means – they just have to buy the newest gadgets obsessively, even if they can t afford it.
In order to buy these items, they resort to using their credit cards or even taking out a loan without considering if they can manage the monthly payment. If you can use a credit card wisely, you have one of the tools for effective financial management. However, you need to show real discipline to be able to handle credit cards. This is because a credit card in your pocket is an ever-present temptation when you go shopping. After all, you can buy just about anything within your credit limit.
Ideally, you should pay the entire outstanding balance per month to avoid finance charges. If you can t, you must remember to set a personal limit as to the amount of credit card debt that you want to have. Most experts recommend an amount equivalent to your one month salary at the most. This will ensure that you won t have an impossible time paying for your bills if you ever have to leave your work.