Our relationship with money is one we shy away from. In fact, most of us wish it would just manage itself. In all my years of working in various corporates, I have often found young men and women struggle with understanding tax basics to comparing notes on how little they actually have left in their accounts on the 15th of the month. The common myth is that ‘I am not earning enough — how am I even expected to save?’ The truth is far from that. Every small bit counts. One of the most successful investors of all time, Warren Buffet says, “It is not necessary to do extraordinary things to get extraordinary results”.
The journey from scarcity to abundance is only a few steps away.
Save first, spend later: As soon as the paycheck arrives, instead of thinking of what you shall indulge yourself with, put aside your monthly savings — ideally, at least 20% of your income. This is as critical as wearing a seat belt while driving — incase of sudden jerks, the seat belt keeps you safe and secure. It might feel unnecessary and binding, but don’t be fooled. This saving will keep you safe.
Don’t tell me what you value. Show me your budget and I’ll tell you what you value. ~ Joe Biden
Spend on what matters: Watch your spending behaviour just for a month and you will begin to see a pattern. Sometimes we spend on things which don’t bring us joy or satisfaction, and end up sacrificing on purchases which would have added so much more to our lives. How about trading that excess shopping with a short holiday budget? Consciously choosing what we spend our hard-earned money on, goes a long way in bringing a sense of fulfillment from our earnings.
“Too many people spend money they earned to buy things they don’t want to impress people that they don’t like.” ~ Will Rogers
Tax Saving: Invest in understanding the various tax-saving options under Sec 80C— from what is covered under the Rs 1.5 Lakh limit to additional benefits of Medical Insurance, Education Loan, Donations. Take help of those around you who have knowledge or read articles or watch videos to stay abreast. Understanding your taxes is not optional — and it is not complicated either. Efficiently managing tax will amount to the much needed increase in your cash-in-hand as well as avoid last minute panic of making investments which you don’t fully understand or need.
Accumulate an Emergency Fund: Your emergency fund is you safety net in case of a crisis. This should ideally be three to six months of monthly spends which should be parked aside as an FD or in a savings account as available cash for unforeseen situations. While one always has family and friends in times of need, it would give you added confidence and a sense of control over your finances, knowing that you can ride through on your own.
Watch out for debt: Debt enters our life mostly in harmless forms like credit cards, education loans, car loan, EMIs for furnishing your new home, home loan, borrowing from close friends or family to tide over a trying financial time, and so on. Often we find comfort in the knowledge that we are not alone. Debt is the new norm to sustain our desired lifestyle. However, we often forget that postponing payment for today’s luxuries is bound to catch up with us. Stay away from debt taken for luxuries and excesses. If you already have indulged, plan your way out of it today. It’s just like resisting that extra piece of cake because you know ‘once on the lips, forever on the hips’. Taking debt to leverage cash-in-hand towards higher return generating assets is the only plausible logic for allowing it to enter our lives — if you are not clear about the above statement, you are possibly not ready to take on any debt yet :)
“Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.” ~ Ogden Nash