Managing investments also means having enough to support your future expenses. Balancing debts and regular expenses is a hard task but not unachievable.
Just as the number of well-paid jobs is increasing, expenses are skyrocketing. If you have purchased a car or a home recently, chances are that you’re still paying EMIs on your loan, or have some kind of debt to settle. And when you are in debt, it’s a challenge balancing your expenses and making your income last till the end of the month. It makes you wonder if you’re going wrong with your finances and if you could do things better.
Even with well-paid jobs, multiple earning members, why can’t we manage our finances well? The problem lies elsewhere. It is how we perceive finances.
For most people, managing finances would mean saving. But it is not that. Managing investments also means having enough to support your future expenses. Balancing debts and regular expenses is a hard task but not unachievable.
Let us discuss some tips and tricks that can make life a lot easier for most of us:
1. Make a list of the different debts/EMI you are paying every month. This entire amount should not be more than 50% of your salary. If it is, you might want to stop and reconsider increasing your loan tenure to reduce your EMI burden.
2. Personal loans and credit cards can help finance a lifestyle we aspire to. But they are expensive credit with high interest rates. If they are not settled in a timely manner, they can be harmful to our finances. Use these two options judiciously and only as an emergency option. In other words, mend your spending habits in a way you don’t have to rely on credit cards and personal loans.
3. Real estate – a house or a piece of land – is an appreciating asset. With time, you can get good returns on them. Taking a home loan to finance a property purchase is a good idea since you are not only buying an appreciating asset but also getting tax benefits.
4. If you have multiple debts and paying the minimum amount for each, make a plan to settle them as soon as possible. Pick the biggest or the most expensive debt, get whatever amount you can manage and pay towards it so that the time frame for the debt shortens. Keep paying the minimum amount for the other debts and then once the most troublesome debts have been paid off, target the next one.
5. Meanwhile, try to save money in every way possible. Learn more about tax benefits that you can get from the government. Not just a housing loan, school going children and sick parents can also get you tax relief.
6. Making a budget is imperative at this stage. And not just making it but abiding by it. Our lifestyles have become so dependent on restaurants, high-end shops, international holidays, that sticking to a budget is tough. However, it is necessary if you want to be on the right side of debt. Make a list of monthly expenses and see if you are saving any at the end of the month. Keep that money aside for a few months to pay off some of your debt.
7. Remember if you are paying EMIs on time, it might take long but you will get out of debt eventually. It is necessary to reduce the time frame and avoid paying a lot of money on the loan interest. One way to do that is to build a corpus from your savings. This serves two purposes: the corpus can help you in an emergency, and it could be used to make a lump sum payment towards your loan principal, bringing down your loan tenure as well as your interest payments.
8. If unsecured loans like credit card bills form a large part of your regular expenses, do consider bringing down these expenses soon. If not, keep just one credit card with a low balance limit, and that way you won’t be able to spend too much.
9. Stay motivated all the time. Getting out of debt is a challenge. Never stop planning and plotting how you will get out of debt. For, beyond your debts lie a joyous, comfortable life.
10. If you figure out that you need to cut your expenses, change your spending habit and your attitude towards finances, then it will be easy enough to go to the next level. If you have a spouse who is contributing to the financial crunch, have an honest chat with them and plan together to make your future better. This will help in your personal bonding as well.
Managing debts is not difficult if you have the right attitude. You should be, however, willing to lead a more disciplined life, willing to sacrifice certain luxuries if necessary, and you can do that only when you understand that you are working towards a stable and worry-free future. Even when the debt is paid off, make managing your finances a habit. It will be life-changing.
The author is CEO, BankBazaar.com