Growing consumerism and easy availability of credit often leads to spending on purchases that are beyond one’s repayment capacity. There are two ways of avoiding such a situation, either have a reactive approach of delaying the purchase till the time you save enough or follow the more pro-active approach of planning your finances early so that you always have finances ready as and when a good deal comes your way.
While it is intuitive that one must take a more pro-active approach to financial planning, there are many who start with this intent but falter as they are unaware of the simple habits which can help them follow this approach more efficiently.
Handling finances can be a difficult task and it is essential to inculcate prudent habits when it comes to money matters. How many times have you said to yourself, “Where does all my money go?” or “I am broke by the end of every month”? This shows the lack of planning for your finances. But when handled and planned right, your finances can help you enjoy a comfortable existence without the worry which accompanies living from paycheck to paycheck.
Financial prudence basically means planning well in advance and investing in areas where you can expect high returns. It also means having complete knowledge about the money you have and how you can make it grow best.
Below is a list of 8 financially prudent habits that should be adopted to ensure financial stability
- Create a monthly budget: Live within your means by creating a budget in the beginning of every month. Stick to this budget and avoid overspending on unnecessary items. From whatever amount you take home each month, save atleast one-third of your monthly take home salary. To ensure that you do not overspend, practice self control and ponder if you really need to buy that expensive phone or the latest party dresses.
- Make buying decisions on the VALUE you get: If you are planning to buy a house, or a car or a motorcycle, your decision should be based on the value you get for the same over its entire lifecycle. It is ideal to plan the amount you are comfortable spending on the purchase, and then look for options that fit into your budget. When making a buying decision, do take into account the residual value that you will get when you sell the house or vehicle. Opt for an asset which gives a higher residual value. This allows you to enjoy the asset and get a healthy return when you decide to dispose it.
- Automated monthly transfer to a dedicated savings/ contingency account: This is the real trick behind saving. Set a particular amount aside and opt for automated transfer that will help you save for your big buy or for your next holiday or simply for retirement. Whenever you begin to earn, this is the first step towards forced saving. A contingency account helps you when there is an emergency or a sudden need for money. This way, you will not have to ask your family or friends for help.
- Avoiding impulse purchases: Don’t indulge in an impulsive buy, or try to curb extravagant habits as much as possible. Compare products from different shops and see what they have to offer. Also, don’t think that buying in bulk is buying cheaper. You might be lured with the various offers by different supermarkets that tend to motivate you towards bulk buying. Impulse purchases will leave you regretting in a couple of days when you see better offers and the same product available at a cheaper rate.
- Not missing monthly credit card or EMI payments: If you are using a credit card for your purchases, one of the most important tasks is to not miss out on the monthly credit card payments. In case of credit card or EMI payments, it is important to remain punctual and maintain a positive credit score. To be financially prudent is to be aware about the payments you are expected to make during the coming month and to do it on time.
- Planning for the long term: Financial planning means planning for the long term. Be it for a month, year or for your long term goals. Set aside certain financial goals for the long term and plan for the same. Maintain a budget and set aside a particular amount to achieve the financial goal. Planning for long term should begin now. You will have to work towards your goals and save and spend accordingly.
- Take advantage of festive offers/ seasonal discounts: When purchasing daily necessities or for big buys, the ideal thing is to wait for festive offers and make the most of them. Festival offers usually help you purchase at a cheaper rate. For instance, Diwali festival offers feature huge discounts on every product. You can make the most of your purchase and save from the budgeted amount as well. Scout through different shops or online shopping websites to find the best deals and offers available for your purchase. It is ideal to wait for an offer than to make an impulsive purchase.
- Undertake periodic maintenance to avoid higher bills a later stage: What you neglect now, will ask for your attention at a later stage. Financially prudent individuals never neglect periodic maintenance requirements as and when they arise. If you neglect now, it will pile up and hit you harder at a later stage. Periodic maintenance should be taken care of on time. This will save you from a large amount of spending in a couple of years.
These wise habits will help you save on money and also help you
Culled from Hero Fin Corp