Most of us live from paycheck to paycheck. That is a curse on salaried employees. If you are a salaried employee—no matter at what level—you will find yourself in financial mess sooner or later. Mosly likely—sooner than later.
You know—why? Because, most employees want to start enjoying luxuries the moment they find their very first job. They take out loans left and right for every little thing—for luxurious furniture and gadgetery, for car, for home etc. Within four or five years, they find themselves neck deep in debt.
Many of us have a casual approach towards the way we handle our finances till we get into trouble. All our bills get paid on first-come, first-served basis. Half-way through the month,we start fumbling for some respite from the financial situation we land ourselves in.
The truth is that we often overshoot our financial resources and go overboard with our spending. Thanks to credit cards, loans etc. If we do not keetp tabs on our expenses at every stage, we are bound to be sucked into the vortex of debt trap. We may have several loans running at the same time such as home loan, car loan, education loan, personal loan, and so on and so forth. After paying the EMI (Equated Monthly Instalment) of these loans, very little is left for day-to-day expenses.
If you are in such a situation, your alarm bell should start ringing. It is time to take some corrective action. It is time to get into the fire-fighting mode. Things work out better when we plan our finances.
When we reach this stage, it is time to give it a serious thought and start planning our finances and invest our time in preparing a montly budget. If we do not do that, we may be headed towards bankruptcy.
Loans and credit cards provide motivation for overspending. In most cases we find that we have already spent the money that we are likely to earn during the coming months. This is serious matter. If you carry more than one credit card, consider surrending some of them. This will help in minimising or avoiding our tendency to put the expenses on other credit cards when the credit limit of one credit card gets choked.
The first step towards financial recovery is to start financial planning. Make a list of all the money you owe to people and financial institutions. Then make a list of expenses for the last three months. Classify them under three heads: (i) repayment of loans and payment of interest; (ii) essential expenses; and, (iii) avoidable expenses.
Now scan the avoidable expenses and divide them into recurring expenses and one-time expenses, if you like. But make sure that the expenses listed under avoidable expenses do not find a place in your future expense statements. Don’t make the situation worse by spending on new items unless it is absolutely unavoidable. Your thirst for latest arrivals in the market can wait for some time. If you ignore this, you may end up in bankruptcy your future and you will be under constant threat of financial collapse. No matter what you do, your financial security should be a matter of utmost concern for you if you wish to lead a peaceful life.
Each time you encounter an expense, ask yourself: is it necessary at all? If not, don’t spend your money on it. Instead, use that money to pay your debts or invest the money on something that would bring in prompt returns. Use every penny you earn and apply your earnings to settle outstanding payments. Bail yourself out of your outstanding loans one-by-one.
Once all your debts are paid off, create a corpus fund to meet contingencies and emergencies just like the corporates. Then draw up a sensible investment plan and secure your life with financial security. Never invest on items whose value depreciate with time. A good example of such investment is that of luxurious car. Invest only on things that will appreciate in value. Given the choice, you should always consider investing in real estate first than investing in a luxurious car. The simple logic is that your investment on real estate is likely to grow while the value of your car is bound to depreciate with time.
Remember the old adage, it is not how much you earn but how much you save that makes you rich. I will go one step further and say that it is not how much you save but how sensibly you invest your savings that ensures financial security.
