The current scary economic conditions we are living through make me think about my finances more than usual these days. Every time I switch on television, I see companies going bankrupt, doing retrenchments, freezing their hiring and sometimes not paying wages to their employees. Each time I panic with these thoughts and start checking on my job, expenditure, savings etc. to make sure that am I doing something wrong? Always I try to think that how can I be more prudent? After checking my asset column, I feel satisfied as I know I am well positioned to pass this storm without making compromises if necessary. But what about the people around me?
Most of the people, I hang around with or have acquaintance with, are living a lavish life. All of them are in their late twenties or some in early thirties but most of them earn almost in the similar income range. They own Cars, expensive electronic gadgets like iPod, iPad etc, They spend exotic vacations in India and abroad. Recently I was talking to one such friend of mine and I get to know that he is daily chased by credit card companies. Similarly One another friend is thinking about taking a personal loan to clear his credit card bill as he is not able to pay CC bill along with his education loan.
After these interactions, I reminded of the common lines said in every super hero movie “With great power comes great responsibility”. This is true in case of our generation; we got an extraordinary power of credit from various institutions unlike our parents, who have to struggle for bank loans and end up getting loans from local lenders against heavy collaterals like gold, land etc. I can say it as a fact that most of working class corporate employees receive at least 2-3 calls a week for either a better credit card or pre approved personal loans.
I tried to go one step further with these people to check their contingent financial plans and I was amazed by the responses seeing that not even one of them had planned for their contingencies. This is the point where I thought of writing this note, sharing the basic rules to follow in personal finance learned from my parents to live a better tomorrow along with present:
- The most important one in all is “To Live within our mean” (“Jitni chadar ho, pair utne hi pasarne chahiye”. Every time we go for loan or buy something on EMIs, we are allocating a part of our future income which is yet to come. This not only increases the risk on your finances but can get multiplied in case of troubles like a job loss or no pay hike.
- Try to build a source for future income, in place of future expenditure of income. Whenever we take loans our part of income goes to banks/financial institutions and we keep waiting for our next salary to spend in next month. We should try to avoid loans unless it is necessary and if we taking loans we should make sure the money is used to buy an asset of same value, which is going to increase its value over the period of time like House, Office space, Franchise etc.
- Be prepared for the emergency/unwarranted situations by using Medical insurance, Life insurance, FDs/RDs to keep emergency cash to fund expenses at least for next 6 months.
- Keep reading about the best possible ways to manage your finances and making investments.