They say, “common-sense is not common” and so, we often prove this every day in our lives without knowing.
There are some basic common-sense personal finance principles that can help us have good control of our money and avoid the likelihood of going broke.
However, even though they are meant to be “commonsensical”, it is doubtful if they are actually “common-practice”.
1. Common-sense requires that we all keep some kind of emergency fund. One of the things that, this Coronavirus and isolation period is proving to us is that it is very important to have an emergency fund.
It is one of the most basic principles of personal finance, to have at least, 3 months worth of living expenses, saved or invested in a low-risk and easily accessible fund for the rainy day.
Coronavirus has forced most of us to stay at home. It has forced most of us to stay in isolation. However, it has not stopped our bills to stop coming to to stay in isolation.
So, except we had some kind of arrangement for emergency funds, many of us might not find it easy to make it through this period.
2. Don’t spend all you earn, save and invest at least, 10%-20%. This also is one of the commonsensical principles of personal finance. It is basic wisdom not to spend all your earnings but to save some of it for the rainy day.
One of the things you would learn if you read the book, “Rich Dad, Poor Dad”, is that rich people save/invest first then spend the remaining while broke people spend first then save the leftover (if there is anything remaining).
I am also very guilty of this. I sometimes find myself doing against the right thing to do, and blow away my weekly income on a weekend.
3. Avoid taking loans to fund things that don’t make you more money. This is also very commonsensical but it is not often practised much.
We live in a debt-driven culture and so, many of us would take loans for just about anything, without thinking of the consequences.
The reasonable thing to do would be to take a loan, only for something that would make you more money in the long run (except for cases of emergency).
However, banks and loan companies do such a good job at marketing and advertising that, we can hardly resist the temptation to take out a loan to fund a car purchase or even a celebration.
Truth be told, if were to be 100% prudent with our finances at all times, we would be missing out on a lot of fun and interesting things, most of the time.
While it is important to follow those commonsensical rules, it is practicably impossible to follow them all the time. It is however, very important to make sure we do not fall short-of them too often.