15 October 2011

Personal Financial Management 1: To Differentiat the Need and Want in Our Daily Basis

The first thing to do in personal financial management is to distinguish our Needs and Wants. Needs is something that is necessary to our daily basis. For example, we need water to survive; we need food to survive; we need to have a sun glass to protect our eye; etc. Wants, on the other hand, is something that will fulfill our desires, temporary. For instance, we want to drink beer to get rid of stress, temporary; we want to eat $100 per meal instead of $10 per meal to make us look like more superior, temporary; we want to have a branded sun glass that costs extra of $300 to protect our eye; etc

However, the fact is it quite hard to distinguish Needs and Want in our life. For example, car can be categorised either Needs or Wants. For a salespeople, having a car can be considered as Needs. This is because car is a essential tool for salespeople to do their business. Salespeople need to travel from one place to another place everyday depends on their marketing strategy. Without a car, salespeople will face difficulty to do their business. In constrat, if your workplace is just 1km a way from your home or the public transport is quite convenient for you, having a car is considered as Wants unless you have special reasons.

Next, let me ask you a question now: having a house is considered as Needs or Wants?

If you have a permanent job, enough saving, and decided to stay around the area, having a affordable house is a Need for you. This is because you can use rental fee to pay your monthly instalment. So, the question, how do you determine it is affordable or not? The simple rule is your monthly instalment of your mortgage should not more than one third of your monthly salary. This is because normally it takes more than 20 years for the instalment. In these 20 years, many possible bad things could occur in our life such as losing job, economy crisis, sick, etc. Therefore, we should always think twice and think long term effect for every decision we make.

So, what is the benefit if we pursuit Needs instead of Wants? First, all our essential requirement in daily basis will be fulfilled. Second, we have more time to do what we like to do. Third, we have a chance to get rid of rat race. Fourth, we can balance our life in terms of spiritual, financial and relationship.

Lastly, what is the pitfall if we pursuit Wants instead of Needs? The obviously answer is we will struggle in the rat race forever.

Therefore, do start your personal financial management. Be your own financial manager to manage your money properly and subsequently acheive financial freedom. That's all for today. More fascinating articles and sharing will be updated from time to time in Xaivier Blog. So, you are welcome to subscribe our feed, look at our sitemap or simply visit our Homepage.

Written by: Xaivier Chia


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