Easy credit can make your financial life uneasy

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Easy availability of credit in form of different types of loans or credit cards often gives us a compelling reason to borrow more than we need and fuel or aspirations. Be it a home loan or car loan or a consumer durable loan or buying a smartphone on EMI, we all borrow money in some form or the other to make big-ticket purchases, which are beyond our financial reach.

So called ‘festive sales’ or ‘seasonal Sales’ which give us an opportunity to purchase our ‘aspirations’ at ‘unbelievable’ discounts, too make us spend recklessly.

Inadvertently, we start walking towards a debt trap and end up in a tight spot. While there’s nothing wrong in having high aspirations, financial discipline is equally important. So how can you ensure that easy credit doesn’t make your life uneasy?

Stick to 28/36 rule This rule helps you access your financial health or your borrowing ability. According to this rule, a household should spend a maximum of 28% of its gross monthly income on housing expense. And total household debt – including home loan / rent, credit card or car / consumer durable loans – shouldn’t exceed 36%.

Save first and spend later “Do not save what is left after spending. Spend what is left after saving” – Warren Buffett. Due to easy availability of credit, the necessity to save has taken a back seat. Remember how your parents used to save up for major purchases? Don’t wait till the month-end to save. Instead, start the month with savings and investments.

Keep a check on discretionary expenses Spend frugally. Being frugal doesn’t make you a miser. Discretionary expenses or non-essential expenses, if left unchecked, eat up a big chunk of your salary.

Financial planning Financial planning is not just restricted to tax-saving or buying insurance policies or planning your retirement. Identify your long-term and short-term financial goals and invest necessary amount in suitable instruments to meet your goals. Invest to meet your aspirations, don’t borrow.