Not saving enough for future Its time to change course now

Written by Adhil Shetty | Updated: Feb 4 2014, 18:20pm hrs
SavingsIf you have been working for years now, there should be income worth at least a year saved in the account. (Thinkstock)
At some point or other, people face situations that make them wonder whether their financial life is on the right track or not. They begin to question if there is growth in the near future, or are they on the verge of a great financial disaster.

If your financial life is in jeopardy, you need to take charge of all financial matters while there is still some time left, and make the required changes before it crumbles totally.

Contingency funds

The first and foremost sign of a troubled financial life is that you cant survive for more than three months in case of a job loss. If you have been working for years now, there should be income worth at least a year saved in the account for dealing with such unfortunate situations that come without any prior notice. Sadly, this is not the case with a majority of people.

Their monthly expenditures usually exceed the income, which leads to negligible or zero savings. Whats even worse is that in case of zero savings, people are forced to live on borrowed money, which leads to piling up of credit card or personal debts and negative bank balances. Such cases bespoke big financial trouble and require one to make some quick moves to save for the future.

EMI for depreciating assets

There are two different kinds of debts good debt and bad debt. Any kind of debt that helps an individual build personal assets and multiplies in terms of value over a period of time is considered good. This doesnt suggest that one should opt for this. At the end of the day, it is a debt, but slightly better than the bad ones.

Bad debts are those that are primarily used for the purpose of consumption, for instance credit card debt, personal loans and the like. They are just another means of disbursing income to outsiders regularly and, that too, without building any kind of long-term assets. If you are earning money just for the purpose of paying others and not building any assets, it is time you stop and change course.

Higher paying job

Every year or, ideally, after two years a person should be able to climb up the ladder and reach a higher paying hierarchical position in the company. However, despite years of knowledge, skills and experience, if a person doesnt climb up the professional ladder, the amount of money required every month will not increase, but inflation will. This indicates big financial trouble and calls for the need to find a better job by increasing the level of skills and knowledge.

Most people have a bad financial life and as it is not affecting them in the short run, they simply choose to overlook it. Every other bad choice made in this direction does not affect the next day, but only worsens the situation for the future. Therefore, it becomes imperative to measure your financial life on the basis of these pointers and adopt a changed gameplan to be better prepared for unforeseen situations in the future.

Youre in trouble

* If you cant survive for more than three months in case of a job loss

* If you have been working for years now, but dont have a balance worth at least a years salary in your account to deal with emergencies

* If your monthly expenditure exceeds the income, leading to negligible or zero savings

* If you are earning just for the purpose of paying off debt and not building any assets

- The writer is CEO,