No matter how much you earn, your financial stability will always depend on how you spend the money and how much you save out of your earnings. The thumb rule is: Never spend more than what you earn.
Don’t be in a hurry to impress others. Because, when you do that, you invest in things that may not be absolute necessities. Once you get into this habit of buying things for which there is no crying need, you may squander your money at pleasure and regret in leisure. In the process, you may take out unnecessary loans and get into debts to pay for them when you overspend.
Always invest in things that appreciate in value. Create assets by investing in things whose value appreciates over a period of time so your net worth increases with time. These include: real estate, blue chip stocks and commodities whose value appreciates with time like gold.
Please do not invest too much on items that depreciate in value. Things that depreciate in value will turn out to be liabilities for you at some point of time. You may spend a fortune on a fancy car but the value of the car is bound to depreciate with time. Add to that recurring expenses such as annual insurance premium, high maintenance costs, and fuel expenses.
If you invest in a high-end car, you will end up paying higher insurance premium and higher maintenance bills in addition to the interest on your loan. That’s a perfect recipe for doom unless you are really a moneyed guy or gal. If you invest in a high-end car in the early years of your career, that is a big blunder you will realize at leisure. Because, you will shell out a huge amount by way of EMIs to the bank or financial company that rolled out that loan for you. That will also increase pressure on the cash availability for your monthly spends. By the time you pay off the last instalment of your car loan, the market value of that car would have reduced by 50%. That is a big loss.
On the other hand, if you take out a loan to purchase a house property, you may save up on monthly rent and the value of the property will increase manifold by the time you pay up your home loan. So, you gain both ways.
If you are game for stocks, be on the dynamic mode always and track all significant changes in the stock market—ensure that your net worth keeps rising instead of sliding down.
There is a reason why assets are called assets and liabilities are called liabilities. Learn to differentiate between the two and invest in assets. Because an asset is an asset and a liability—a liability!
