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 pay off credit card dues, it will result in a ballooning credit card bill, which, in turn, will hamper your credit score and lead to financial problems.

Inefficient utilisation of surplus: Even if you do not spend excessively and do not have much debt on your books, it does not necessarily guarantee financial stability for a high-income individual. This is because the surplus you have month-on-month may not be deployed efficiently. That is, you may have excess cash on a monthly basis; but if you do not invest this money in good investments, you will just end up earning miniscule interest or sometimes even losing the principal.

Saving money in your savings bank account will result in you earning minimum interest. Similarly, if you invest in inefficient plans like poorly performing unit-linked insurance plans, you may end up even losing your principal amount if the markets do not perform well. All this compromises your chances of earning attractive returns and building your wealth, despite earning high income.

The above factors, if not taken care of, can spoil your financial future even if you have a sufficiently high income. So, what should you do if you want to make them most of the money you earn? Here are a few pointers which you must follow to make your money work for you and enjoy a sound financial life:

*Prepare for your expenses and monitor them carefully on a monthly basis. Do not indulge in impulse spending; plan your expenses on luxury items and big ticket expenses in advance. It is always important to invest first and only then look at discretionary expenses.

*Credit cards, if not used with care, can be a great bane to your finances. Use them effectively. If you have high income, it is only natural that banks line up at your doorstep offering a wide variety of cards. Be careful in picking the right cards.

*Borrowing is an easy way out of your financial difficulties. Having a high income will also make it easy for you to get loans from banks. But remember that borrowing excessively will only increase your financial problems. Keep a watch on the liabilities in your balance sheet.

*Plan and prioritise your goals. Estimate the amount needed for each goal and ascertain the monthly investments you will need to make to reach your goals.

*Investments should be monitored regularly. Invest with a focus and not randomly without understanding the meaning of the investments you make. Consider your risk and return profile before you make any investment. Take professional help if you consider yourself under-equipped to make sound investment decisions. However, make your own judgment and do not follow your advisor blindly.

Thus earning high income is not the only thing needed. Utilising your resources efficiently and having financial discipline is the key to gaining financial security.

The writer is CEO, BankBazaar.com