Managing your money today

Try and track every penny that you spend. You will be amazed at how you spend money. You will probably give yourself a scolding once you make the discovery

Your parents must be employed or have their own business. Every month, those who are employed get their pay slip, which records the payment in the form of monthly earnings. The amount sits pretty in your parents’ bank account. Now assume for a moment that you are in their position. Over 12 months of that amount should make a very big sum. But does it? No. Why so?

“Your family pays taxes. Mediclaim, insurance premiums, housing loan EMI (equal monthly instalment), car loan EMI, rents, household expenses, cell phone charges, credit card, groceries, hotel, entertainment, health care, vacations, family welfare, etc... all make their own claims.”

“Then there are family aspirations. Big house, home theatre, exotic cruise... you spend without realising what it entails. The more reckless you are, the more your debt. Little or no savings, rising credit card balances, increasing consumer loans all pile up and if you don’t check your expenses, your lifestyle controls you. What is worse, even a salary hike means double the salary, so, double the expenditure.”

What can one do to break this vicious cycle?

Different methods work for different people. Let’s look at one. You deposit ‘x’ amount every week, how much you can afford, in an account that earns y% interest.

If you begin at age 24, by age 60, you would have a lumpsum amount, maybe even crores. If you started at age 20, the fortune would be even greater. Small amounts of money, accumulated consistently and earning interest over a long period of time, give handsome returns in the end. That is the power of compounding.

But to do all this, you need to see how and where your money ‘disappears’.

Try and track every penny that you spend. You will be amazed at how you spend money. You will probably give yourself a scolding once you make the discovery.

Think of what you urgently need and then you have a goal to work towards. Easier said than done... It is hard to save money simply because it is easier to spend it. But you can spot the grey areas with some discipline:

  • Why the need for the second cell phone?
  • Don’t carry a credit card unless required.
  • Visit malls post lunch. Psychological research has proved that you tend to spend less on a full stomach as any reckless craving for food or shopping is reduced.
  • Use car pooling facility.
  • Why not earn in spare time?
  • Eat at home regularly.
  • Treat all gains which come once in a way (such as cash prize, lottery), gift cheques and allowances, as savings.

Begin slowly but steadily and have the target put up on your cupboard or your personal notice-board. Gradually, you will come across realistic methods of meeting your aspirations. But all this is for the later years when you will graduate and enter the world of business and employment. How is it relevant today? Well, very much. You can make ‘budgeting’ a hobby that will soon turn into a habit...

Believe it or not, you will be addicted to the power of budgeting. Even if you may not be actually incurring expenses or earning income, you can help your parents in household financial management. Once you become proficient in making budgets, you can start using user-friendly tools like Microsoft Excel for the same.

There are many ways of saving regularly like using piggy banks for all gift monies and allowances and opening a savings bank account to safeguard your wealth and make your money earn interest. You can also set small saving goals for yourself—whether it is buying a computer, buying new sports shoes or enrolling for a course of your choice. As far as possible, before every purchase ask the question “Do I need it or do I want it?” That will help you buy what’s appropriate.

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