There is a stereotype of people who get in financial troubles. You might think of them as overspenders or irresponsible. That could be true; but being responsible alone doesn’t mean you are immune to serious financial trouble.

In fact, many people are responsible in their daily lives, manage successful careers and household can end up in major financial issues if they are not prepared to deal with their money efficiently. That is why you must look at financial discipline in isolation. What does financial mean? How could you maximise your knowledge and make sure that even when things get tight you’re not in a financial crisis. The answer to these questions begin with being humble and admitting to what you don’t know.

Many people who claim to be knowledgeable of how to manage money lack the basics of financial knowledge. For example, they might not know how credit card interest is calculated. It may be unclear to them what fees and charges are associated with their various accounts. They may leave money on the table by not shopping around for the best products — not only in terms of things to buy but in investments and savings as well.

So how can you safeguard yourself against the risks of managing money. Here are a few steps you can take today.

1. Review your money goals

Do you even have money goals? Many people are happy to just break even. But if you always live paycheck to paycheck, you are unlikely to move forward. Set money goals that are measurable and achievable. For example, you might decide that you will be saving a portion of your income everything toward your retirement or children education.

If you don’t have an emergency fund, you might want to establish one and make sure you channel part of your income into it to reach a stage where you have a fund that equals six-month pay. Having goals like these is not a luxury, it is a healthy effort that proves that you can push yourself to make compromises and sacrifices that provide a safety net in a case of emergency.

2. Learn the basics

Not spending much on your credit cards and avoiding debt are all great ideas. But it is important that you also know, for example, how to use debt efficiently when needed and how to decide about what kind of loan or credit you take when needed. The point is: there is more to managing money than being careful.

And many money decisions can be made only if you’re intimated by interest rates, APRs or any other banking jargon. You need to understand the basics to be able to ask smart questions and know your options. How to go about learning the basics? They are endless resources online. You also can simply ask your bank representative.

For example, if they offer you a credit card, ask about the costs. Ask what if you spend Dh100 today. When will you have to pay them, what if you don’t pay them and how much you can pay as a minimum. What if you don’t pay the entire amount for a year? Simple examples can help you understand the costs and compare apples to apples — if other products are on your mind.

3. Know your weaknesses

It is time for a reality check. What areas of financial knowledge are you lacking. Do you dread looking at statement? Do you ignore budgeting because you don’t know where to start or how to keep a budget? Understanding your weaknesses is a good way to find ways around them. Even if you don’t have a problem currently, maintaining good habits is the only way you will know when trouble is about to ensue. So make sure you take action to avoid getting too deep into trouble before you even recognise it.

Factbox: Preventive actions to money trouble

 — Have money goals

 — Understand basic money management

 — Overcome your money obstacles

— Grow your knowledge

— R.O.

— The writer, a former Gulf News Business Features Editor, is a Seattle-based writer.