Expenses include everything you would spend money on like buying goods, services, or consumables. Investing does not count as an expense. Expenses are either paid through cash; upfront payment or credit, namely borrowing. All of these expenses are part of your Personal Finance and involve a certain amount of risk.  Let’s talk about today the expenses you could incur, the risks you might face, and how to minimize those risks.

Source of expense

 Earnings are used to cover these expenses. They include –

• Rent

If you are living in a rented home, this expense must be paid every month and should be included in your budget.

Loan repayment

If you have taken out a loan, whether it is a housing loan, a personal loan, a student loan or a credit card loan, you will need to make regular monthly payments.

Bills

Water, electricity, phone bills, maintenance, etc., have to be paid on time every month.

Taxes

As a citizen of the country, it is your responsibility to pay your taxes – income tax, property tax, etc.

Food

A simple expense could be purchasing groceries each month.

Entertainment

Expenses incurred for recreation, eating out, shopping, spa, excursions, or holidays.

 Risk Associated

Inability to meet your monthly expenses, loan repayment or basic needs is a risk associated with expenses. Reasons for this include:

Unemployment

The loss of a job can be a result of underemployment or insufficient qualification. This directly impacts your ability to meet your basic needs and pay your regular bills.

Overspending

Using your credit card or borrowing money from others to spend more than you can afford.

Emergencies

Being unprepared for an emergency may result in you spending your savings or borrowing greatly from banks (personal loans, credit cards, and money lenders).

Bad Investments

Investing poorly can result in losing your profit and sometimes even your capital.

If you want to manage your expenses and avoid getting into an expense risk situation, then you can either avoid the risk or transfer it to someone else.

Avoiding the risk

There is no better solution to this problem than avoiding the risk, but it isn’t always the simplest. However, you still need to plan to avoid the risk.

Budgeting

Plan your expenses so that you can stay on top of what you are spending and avoid going over your budget. By including your expenses into your budget, you will get a realistic picture of your financial situation and be able to plan ahead.

Additional Income

Look for alternative sources of income that can lessen your burden and provide you with some control over your expenses.

Informed investment decisions

In order to make successful investments, it’s always important to study the market, compare the performance of the investment instruments with its competitors. Put your money into instruments that can yield you the returns you need and are inflation-proof. Also, you can take the help of a financial advisor who will be able to guide you on your investment journey, keeping your goals, time horizon and risk appetite in mind.

Start an emergency fund

Having contigency funds separate from other investments and savings is crucial in case of an emergency. Your retirement fund will not be drained this way.

Transfer of Risk

In order to transfer the risk, it would be ideal to purchase appropriate insurance policies, such as auto insurance, home insurance, and umbrella insurance.  Depending on your chosen policy terms and conditions, these policies protect you from theft, damage, lawsuits, etc. Indirectly, the policies cover both your present and your future.

Just as you tackle risks in your everyday life without hesitation, you should take similar steps with your financial transactions and expenses. A contingency fund is crucial for meeting any unexpected expenses. By doing so, you will secure your future and reduce the stress in your everyday life.