I often come across friends who tell me that they have negative balance in their savings account by the 25th of each month. They often burrow money from others and repay it next month when the salary gets credited.
That’s when I came across making a financial plan of one such friend. I was surprised to know that my friend actually overspent of what he used to earn each month. My dear friend, had a few of the pampered habits listed below with examples.
Technology or the peer effect: All of us have a like a particular asset. Some like cars and bikes, others like new generation touch screen mobiles, laptops, I-pods and the list goes on. If we look at someone with a new phone that is better than ours we too have a desire to own it one day. But little do we realise that technology is not here to stay. It is a fact that pagers in United States ruled for ten long years but in India pager companies go wiped out in less then a year. Then came normal mobile phones, then came mobile phones with games, music, touch screen and what not. Here, I mean to say that technology is moving really fast to keep pace with. Most of us don’t like to use the same phone for years. Innovation makes us look at new things and all of these demands a price. So keep a track of your spending towards technology and you need not have a new mobile because your friend has one.
Show-off: A pop corn in a mall or a multiplex that costs forty to sixty rupees would hardly cost rupees ten if you prepare the same at home. But you are prepared to pay that premium just because you have gone on a date or with a group of friends. You tend to think, about your friend who would ill-comment about you, if you don’t purchase some snacks during intervals. Don’t you? Hence just to show-off you tend to over-spend.
Mall effect: Now-a-days we at least have one super mall next to our area of residence. We go there to purchase a few things as they turn out to be cheaper than the baniya store or because you get more variety. We end up over purchasing quite a few eatables that are not on our shopping list, but they were purchased as they had a good offer or were being sold for a good discounted price. Realise, that you would not have purchased the same products if you would have visited your baniya near your house as the same offer would not be available.
Hasty decisions: You see an advertisement while window shopping that you would get a home theatre system free on purchase of an LCD. This ad would obviously make you step inside the store and you give a chance to the salesman to convince you to buy the LCD on cash or credit. He would even give you a refund of your old television with remote and offer you no interest if you make full payment within six months. Its unjust to let go of such a good offer. Think, if you would have missed that shop you wouldn’t have actually bought that LCD. It would have been a different matter if you actually required one television for your home. Please read, understand and analyse a product before you buy. Remember haste makes waste.
The sale effect: Its been a 365 day sale at almost all the shops in Mumbai. Buy 3, get 2 free, 60% flat discount, or offer valid till stocks last are the most common adverts outside the shops. But every time I pass by that shop the stock doesn’t seem to get over. Sale does not always mean that you have got the best deal. It is better to analyse the actual price of the product according to its quality and other factors and then decide for yourself, is it logical to pay an X amount for 1 + 1 free offer. To learn more about the product, scan the internet, check out other such schemes, check out competitors price and then make a wise purchase decision within a few days.
Overburden with EMI: Equated monthly installment is a commitment by you towards a bank or a financial institution promising them to pay an X amount each month under any circumstance. EMI can be for a home, car, personal loan etc. Please remember to have an EMI of not more than 50% of your income. Your personal expenses are minimal when you are single but the expenses and responsibilities increase with an increase in every additional member in the family, maybe a wife or a child. It is always logical to keep your EMI’s in control so that even in case of redundancy you can afford to pay the EMI for a few months from your emergency expenses or savings till the time you are re-employed. Also protect your family with an appropriate insurance equal to the total amount of all your outstanding liabilities.
Over leveraging: Many of us tend to follow a herd tendency towards investing. If Mr. X has earned a quick buck by investing more than what he could we even try to win our luck in lotteries, stock markets, chit funds, real estates etc. Remember, Mr. X was luckily in the right place, at the right time and in the right investment to earn more out of his leveraged investment but the situation would have changed when you try to invest the same way Mr. X did. So be cautious. Think ten times before making an investment option.
At the end of the day its your hard earned money. Spend it as you like but with caution.