Lot of us have changed a lot of our habits last year during our WFH stint due to the pandemic. Habits are something which are built over the years, and to change it, a lot of effort is required.
To name a few – a lot of us shifted to Healthy eating habits and focussed on Healthy ‘Ghar ka Khana’. I know a lot of my friends who started exercising and got fit, started maintaining a healthy work-life balance and many more such things
There is one more aspect of our lives which generally doesn’t get the desired attention – Our Money Habits.
These habits are driven by a lot of factors: The way our parents used to manage money, what we have been observing around, and our circumstances.
It’s extremely important to inculcate Healthy Money Habits and by doing so, we are doing 2 good things-
- We are building a Happy Financial Future for ourselves.
- We are becoming Role Models for our generations to come.
Don’t try to completely change your life in one day. It is easy to get over-motivated and take on too much.
Go slow and inculcate the following 8 Money Habits gradually :-
1. Going Debt Free – Don’t accumulate more and more debt. The government can run a deficit and collect taxes, but a household cannot make borrowing a habit. Interest rates on personal loans are very high, repayment of which becomes difficult. Make sure that you don’t run your credit card dues, the spending on credit cards should be such that it can be paid easily.
Don’t run for personal loans everytime. Don’t get into loans to repay your previous loans. Every time you think of taking a loan, remember EMI is a long term commitment.
2. Use depreciating assets for a longer period – Don’t just accumulate stuff that deteriorates in value like cars, mobile phones etc. Use them for as long as you can to get maximum value out of them. Be aware that with an urge to buy a new phone every 1- 2 years and a new car every 3 years, you are allocating a big portion of your savings to depreciating assets.
The moment the car goes out of the dealership, it loses a lot of its value instantly and then keeps losing value rapidly even further along with use.
3. Make Saving a Habit – When we are in our 20s, we are not ready to save, as those are our initial years of earning and we want to spend it all.
When in your 30s, The lifestyle expenses have already risen so much that even if one wants to save, they can’t as nothing is left after expenses.
When in your 40s, the responsibilities take over with the needs of extended family and nothing is left to save.
When in your 50s, you are actually nearing retirement and the savings that you do now will not compound to provide regular income in ‘zero salary days’.
It’s extremely important to accept your income level and settle down for the money that you can actually spend. At least 20% of your earnings should be saved to create assets and wealth, else everything that you earn will be consumed. This percentage should grow with time. If you are not saving, you are living in a dangerous denial zone.
4. Don’t spend to impress – That itch to overspend to impress your friends, neighbors and relatives will actually end up in you losing control of your finances. One must outgrow this phase and take charge of the expenses. One should build a household model which is in sync with one’s own goals.
5. Buy Insurance – Your Suraksha Kavach– We don’t begin wealthy, we build everything brick by brick and to give them a Suraksha Kavach (protection layer), insurance is important. Insurance of life, health, accidents and precious assets is must. It actually costs very little to get these coverages and comes to respite in case of any eventuality.
6. Compound your Wealth – While investing systematically over the long term and creating wealth may sound a boring and slow process but that is real wealth. Ad hoc investments and waiting for the best investment opportunities can actually lead you to lose on time value of money. Like we compound our efforts for our personal and professional growth, similarly compounding in investments can help in creating the desired wealth.
7. Don’t Mindlessly acquire Property– It is still a debate whether to buy or rent the house that you live in and the decision depends on a lot of factors. Lot of people have been focussing on buying one after another property all their lives and not focussing on other assets classes. Assets must earn money, and be easy to pass on, split and liquidate.
8. Have Financial Goals – Financial Goals depend on your phase of life – whether you are single, married or retired. Financial goals are based on your income, lifestyle, expenses, savings, borrowings and aspirations. Set your goals based on your own life. It will be easier to choose an investment vehicle, if goals are clearly set.
No two financial lives can be the same as one size doesn’t fit all.
Some of us are lucky inheritors, some of us are working hard to get the fruits and some of us are diligently investing to get a desired financial life. Being in control of your finances helps in all the cases.
Inculcate these healthy money habits and you will see a change in your financial life.
About the author: Gurleen Kaur Tikku is a Certified Financial Consultant and devotes her time to her company www.hareepatti.com. She has done her Bachelors in Finance and Investment Analysis(BFIA) from College of Business Studies(CBS, Delhi) and MBA from IMT, Ghaziabad. She can be Contacted at [email protected]