The FINANCIAL — Most Georgians do not calculate their personal finances properly, experts say. Many of their calculations include unrealistic dreams such as “If I won the lottery, I would…” As a general rule Georgians don’t know how to calculate percentages, the influence of currency rate changes, influence of inflation or know what a discount rate is.
The FINANCIAL — Most Georgians do not calculate their personal finances properly, experts say. Many of their calculations include unrealistic dreams such as “If I won the lottery, I would…” As a general rule Georgians don’t know how to calculate percentages, the influence of currency rate changes, influence of inflation or know what a discount rate is.
“One’s spending mainly depends on the size of one’s income,” Besik Namchavadze, expert in finance and financial manager at Free University of Tbilisi, told The FINANCIAL. “As we are a country of low incomes, the population has to spend its entire income on living and therefore saving is quite hard to accomplish.”
“In recent times demand for banking products has been growing. The raised number of loans being issued means that people are thinking about financial profitability and not only spending what they have,” he added.
Securities markets support the proper management of finances in developed countries. This is not developed in Georgia at all, therefore the possibility to manage personal finances efficiently is limited.
“Unfortunately Georgians tend to spend more than they should,” said Aieti Kukava, CEO of Alliance Group Holding, financial company based in Tbilisi. “One’s income should be divided up this way: saving – 20 percent, living expenses – 50 percent, education – 10 percent, recreation – 10 percent and life insurance – 10 percent. As opposed to this model of spending, Georgians in fact spend the whole amount of their income on living expenses and recreation.”
The main advice from experts for the better management of money is to calculate more and count every alternative expense of a decision, to plan sources of income and divide it properly.
“The main thing is not to take on a bigger responsibility than one has the ability to afford; in essence spend within one’s means. Just look first and check whether you have the financial ability for any specific expense before embarking on one, so as not to find yourself in a poorer financial situation,” Kukava advises.
“Georgians have to learn how to solve their financial problems independently of the government, because the government just tries to solve this problem with money actually taken from these very people, however spending it still doesn’t solve the problem,” Namchavadze said.
“I advise parents to invest money in proper education for their children rather than in acquiring diplomas, which is a common practice in Georgia, one which has to finally end in Georgia,” he added.
As experts have said, bad management of personal finances is common is Georgia, but this problem is not unknown to other nations either. For example, the ten main mistakes when managing personal finances for Americans are the following: getting a big tax refund each year, having only a rough idea in your head of where your money goes, forgetting those non-monthly expenses, spending more than you really need to, living paycheck to paycheck, paying a little extra on all your credit card debt, thinking that borrowing from your home equity is always a bad idea, thinking that you should never borrow from your retirement plan either, saving whatever is left at the end of the month, contributing just enough to your employer’s retirement plan to get the match.
The average monthly nominal salary in Georgia amounted to GEL 690.7 in 2011 according to the National Statistics Office of Georgia, which is GEL 93.1 more than that of 2010.
Here are ten common mistakes made by Georgians that could be hurting their ability to manage their day-to-day finances and save for their longer term goals:
Not thinking long-term. They prefer to spend the money that they have today, than double the amount for tomorrow.
Calculating little. They don’t particularly like using a calculator and don’t use the computer for this either.
Often just keeping money at home.
Starting a business without marketing calculations.
Having a tendency to purchase luxury items because of sheer greed, while essentially living in poverty.
Not having diversified sources of income.
Not setting spending limits for themselves.
Not calculating the alternative expenses of a decision.
Not making a simple budget of their income and expenses.
Not having any plans for how to make savings.
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