Many people think that a high income is sufficient for enjoying financial security. This perception is often proved wrong if you do not have a disciplined and organised financial life. As a result, people with high income can also end up in a financial mess. Let’s first look at what you should be wary of when you have a high income and want to achieve some financial stability.
Spending too much: It is understood that if you spend excessively, you are left with lower cash in hand for investment. What most people fail to understand is that the lower you invest, the lower will be the growth of your money. As far as investments are concerned, every penny matters and you can receive benefits of compounding as well when you begin to invest early in life. Earning a high income often lures people into splurging on unnecessary items and spend excessively. This is a sure recipe for financial disaster, irrespective of how much you earn.
Having too much debt on your books: The next thing you must be careful about even when you have a high income is the amount of debt on your books. It is normally suggested that all your debt repayments and commitments in any given month should not exceed 40% of your net take home pay. When your debt repayments exceed your capacity to pay, you are in for a financial disaster. You will soon realise that you are using all your income only to service your liabilities, leaving hardly anything to invest.
Home loan EMI is usually the biggest liability in the balance sheet. Hence, be careful of the loan amount you are opting for when you purchase a house. Unsecured loans like personal loans are very expensive compared to the secured loans. Hence, ensure that you pay these promptly.
Remember your credit card outstanding amount when you consider taking unsecured loans. It is common for people with high income to have at least 5-6 credit cards offering various benefits and high credit limit. If you do not pay attention to your spending, or forget to promptly