- Consequences of poor financial management
A budget allows you to monitor your spending, including fixed and variable expenses. Responsible financial management means using money to obtain the greatest possible amount of satisfaction in return. A budget is developed by:
- Calculating total income;
- Recording and totalling expenses. This should be divided into fixed and variable;
- Comparing income with total expenditure; and
- Assessing financial position. This could include modifying a budget.
No matter what happens, bad things can happen. Like if your employee accidentally sets your pineapple farm on fire, if your 8 year old son accidentally runs your minivan off the port, or if Santa puts you on the naughty list and God steals all of the soybeans from your shop.
To protect themselves, people take out insurance.
- An annual or monthly amount (a premium) is paid to an insurance company in return for a company’s guarantee to pay for damages/losses.
- Insurance spreads the risk around, to protect against a possible future loss. Sort of like peanut butter.
The premium amount for insurance is determined through the level of risk. Higher risk = higher premium. This is calculated and set by insurance companies who analyse past and future trends.
- Life insurance – protects you in case of unexpected death
- Travel insurance – protects you in case you need medical assistance or other unexpected costs overseas
- Private health insurance – covers health expenses, especially ones that Medicare doesn’t
- Car insurance – covers your cars in case something happens to it
- Home and contents insurance – protects your home and its contents in case of unexpected losses (e.g fire)
- Income protection – supplants income in case you are unable to work due to injury/sickness/accidents
If you screw you your finances, really bad things can happen.
If you can’t pay back a loan, then the lender may have the right to repossess goods you bought with the loan away from you. Or, your wages could be garnisheed, a legal order that authorises money to be taken out of your wages to repay a lender. If you can’t repay your debt, then legal action can be taken against you.
Debt can cause pressure such as stress, and their health and wellbeing can be affected. Debt and financial issues are linked to domestic violence, illness, family breakdowns, and even suicide.
If a default notice is received (a default notice is a document from a lender stating that a person (usually a borrower) has failed to carry out the terms of the contract) or legal proceedings have commenced against a borrower then a financial counsellor or lawyer needs to be contacted.
- Pay the amount owing
- Negotiate a change in repayments
- Apply for a hardship variation
- Negotiate postponement of repossession
- Refinance the loan
- Sell your goods and repay the loan
- Voluntary surrender – ask your lender to sell the goods
- Apply for bankruptcy – last resort!