So, you know you should not rely on credit cards, pay your bills on time, check your bank statements often, and save as much money as you can. But is that enough? These are just the A, B, Cs of money. And unfortunately, they can’t get you very far. Just like you need to know the rest of the alphabet to be able to make sentences, you need to inculcate certain habits to help you get to the foothills of financial success, and prepare you for the climb that lies ahead.
Most people go with the flow when it comes to their expenses. When they receive their monthly paycheck, they pay their bills as they come. If they have any money left over, they may indulge in discretionary expenses or save. Since they don’t budget, they aren’t mindful of how and where their money goes and if they are being wasteful. Conversely, successful people swear by budgeting monthly. They have a clear idea of how they are going to allocate their spending and how much money they will save each month.
You can begin by tracking your expenses to map out your spending categories and allot budgets for each. Remember to review and rectify your budget regularly since every month will not look the same.
Once you have the basics in place, such as an emergency fund, life and health insurance, the next step is investing. Having a lot of money simply sitting in your bank is like having all the ingredients for a feast sitting in your kitchen. Unless you don’t use them, you’re not going to have a meal that you can enjoy.
At first, investing may seem a little intimidating. But if you commit to reading a little every week, you’ll quickly start getting a sense of how different investments work, what your risk appetite is, and how you should invest for different financial goals. A good place to start is by understanding the investing jargon.
Yes, it is best to avoid debt. But all debt is not bad. Certain life phases may require you to take some debt to progress in life. The primary difference between good debt and bad debt is the purpose of the debt.
If you’re taking on debt solely for the purpose of consumption, such as using credit cards to buy designer clothes, that’s bad debt. However, if you’re taking on a business loan to launch your start-up or an education loan, that’s good debt. It will help you earn money in the long term and increase your net worth.
Today, the world is consumerist by nature and it’s okay to indulge in your fancies and desires as long as you’re being financially sound about it. So, if you like watches and want to keep building your collection, save for it first. Don’t make the mistake of first making the purchase and then saving money if there’s any left at all at the end of the month.
While it is easy to just charge everything to your credit card to get what you want right away, that’s a sure-shot recipe for eventual financial distress. Hence, if you want something that you don’t have the money for right now, save first.
Being financially prudent does not mean the same thing as being frugal or never buying costly things. Investing in things that add value to your life even though they may cost more than the cheaper alternative that has to be constantly replaced makes sense.
Say, a friend suggests a fancy glamping weekend that you don’t have space for in your budget for the month. Would you feel obligated to say yes, or would you do the financially responsible thing and turn down that offer?
Saying no to yourself is also just as important as saying no to others. Differentiating your wants from your needs will allow you to live within your means and win financially in the long run.
(The writer is Director — Appreciate, a wealth management company. Views expressed are personal)
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