Managing personal finance is difficult for most people. There is a line between wants and needs. Unfortunately most people ignore the line define some of their wants as needs. So to better manage finances, here is a financial quadrant that you might want to check out.
So let’s define each quadrant so that you can better manage your personal finance.
This are your necessities. Food, transport, rent, mortgage or clothing. This anything that you need on a daily basis to survive.
These are the expenses on the the top priority on your list and part of your monthly expenses.
These are the things you can live without but you want to purchase it as a reward for yourself. These are movie tickets, dining out or buying the latest gagdgets or buying an overpriced coffee from your favorite coffee shop.
These makes us feel good and with all the hard work that you have been pouring in, it is nice to pamper yourself once in a while.
These are necessities in the future ranging from your child college education (if you have a child), retirement fund, funds for your business or a purchase of a real estate.
If you notice I did not put purchase of a house. Some would argue that it is not necessary to purchase a house since you can rent but there are so many reason why you should purchase your own.
When I mentioned real estate, I am referring to a property where you can make money out off when you are retired.
College maybe a a few more years for my 7 year old daughter, but as early as now I am already thinking about how we would be able to get her in a good university. As everybody, education is quite costly today. Just Imagine it a few years from now. The school fees could double or even triple in the next 9 years.
These are things ranging from a luxury car, gadget or a vacation to your dream destination. We all want something to show for all of our hard work. Personally, I would love to have me and my family abroad. But since we are just starting out, it is out of the question.
Identifying your expenses in each of the financial quadrants would help you prioritize them. This will help with your decision for the purchase that you are about to make.
For example, a work colleague of mine owns an Iphone 8 and would like to purchase a new Iphone X. Since she is still single and does not have a lot of financial obligations, she can purchase the Iphone.
But if it is up to me, someone who already has a family, I would purchase something else instead of buying a new gadget. Since her old Iphone is still working, she wouldn’t need to purchase a new one.
But it is up to her. That’s her money anyway. Maybe if I am still single, I might consider purchase an Iphone X, if my old smartphone is already very used up. But that’s just me. If she would consider the financial quadrant, she might make a better decision.
When I first read about the financial quadrant,it made a lot of sense. Normally we don’t identify our expenses. Sometimes we consider some our wants as needs. Like for example, I was looking at this birkenstock sandals in the local mall. I have wanted it for quite sometime. It was expensive and instead of buying that, I would rather purchase something much more affordable.
But that’s the thing. Sometimes we find something that we want so much that we feel that it is something that we actually need. We try to rationalize it as something that we will buy for ourselves for the hard work that we pouring are in. Or we tell ourselves that we purchase that expensive once in a while. Sometimes that once in a while because too often. I think that is one of the mistakes that my wife and I made with our personal finance.
It is the same thing as dining out.We tell ourselves it is fine to spend some hard earned cash since we haven’t actually eaten on that restaurant that everybody is talking about. But you know what? Everytime I get my way, I feel regret immediately after.
Now there is nothing wrong if you want to but that expensive new gadget, or dine in that expensive restaurant or go to that dream vacation as long as your present and future needs are not compromise.
If you have the extra cash that you have saved, go for it. The worse that could happen is that you splurge using money that you don’t have and putting yourself in debt. Getting a personal loan to get future wants or putting your present wants in your credit card tab is absolutely out of the question.
What are your thoughts?
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