Avoid these financial traps, warns K Ramalingam.
Illustration: Uttam Ghosh/Rediff.com
Indians are a savings-friendly people.
We want to save more out of our disposable income (total income minus total expenses every month).
Despite these savings habits, we can go overboard with our expenses too:
Festivals and marriages
We love our festivals. And many of us will go to great lengths to celebrate festivals in style. Even if it means spending a lot and ending in debt.
Marriages are another drain on the finances. Parents stake a huge portion of their savings -- even take loans at times -- to get their children (or sisters/brothers) married.
Marriage over, there is a huge hole in the parents' savings, resulting in financial insecurity for the rest of their lives.
Quest for S-T-A-T-U-S
The need to keep up with friends/neighbours/relatives can drive Indians to spend way, way, beyond their means.
Perceptions of status lead people to make impulsive purchases even when one's finances take an immediate hit.
One opts to buy a big car, for instance, in place of one's fuel-efficient medium sized hatchback, just because a friend/relative/neighbour has one.
Or one books a holiday to Bangkok because the Sharmas next door went to Thailand a few weeks earlier.
Such often unplanned expenses are substantial, resulting in much financial strain.
Prioritise your needs. Stick to those priorities when you decide to spend. And save!
Millennial professionals, who earn generous pay cheques, love eating and drinking out.
And while they have a roaring good time, their wallets feel a lot lighter too!
Then there is the urge to use the apps on one's smartphone to order food (because one is just too tired after working 12 long hours to cook), paying as much as thrice the price.
The result: Higher expenses, lower savings.
Feel and Look
Millennials love looking good.
Self-grooming is the key, they feel, to boost one's self-esteem.
This grooming comes at a price though -- after all, they need new clothes, shoes, accessories, and numerous gadgets for the feel-good factor.
All this can lead to spending beyond one's means and ending up in debt.
often times, millennials run out of cash, their bank accounts are near empty, their credit cards have maxed, so they take loans at very high rates of interest just to stay afloat.
Poof! The loans reduce one's disposable income further.
Remember that high-rate loans should be resorted to only in case of an absolute emergency.
Never make an impulsive decision while availing loans.
No household should have loans in excess of 40 per cent of their incomes.
Ramalingam K, CFP CM is the Chief Financial Planner at holisticinvestment, a leading financial planning and wealth management company