That beeping SMS on phone: “An amount of xxxx….Salary credited”
The moment when we feel rich.
And a couple of days later…..
Finance, Tax, Budgeting, Stock market, this sounds gibberish. But it really isn't. It’s the only practical thing we should have learned in school. Basic finance is a necessity of life.
How to do taxes?
How does the stock market work?
Nah we were busy with integrals and calculus. Financial skills are mandatory for healthy personal finance.
Simple steps to stop living paycheck to paycheck
1. Create a Budget
Anything that gets’s tracked gets improved. Know where your money is going. This does not mean track every single penny.
(tea 10rs, dosa 40rs, bus 10rs…..)
If you go that route you will be giving up soon.
Just get yourself a diary, before the start of each month write expected expenses.
Plan your month.
(FOOD 4k, TRAVEL 5k, RENTAL 6K…..)
2. Save first, spend second
90% of people spend 1st then save whatever is left. This is the wrong way to go. Open up multiple bank account. Each one for a specific purpose.
Account 1: Salary Account + Regular spendings
Account 2: Saving Account + Fixed deposit
Account 3: Emergency fund. Getting a new shirt is not an emergency. Use this account only in case of a real emergency.
As soon as salary gets credited, transfer the amount you want to save into a separate account( which is not easily accessible, don’t register UPI on it)
3. Need or Nice to have stuff
Now, this is cliche advice, cut back on unnecessary stuff. Don’t buy anything of high price value immediately, at least give yourself a day and sleep over it.
Chances are next day you will say “I don’t really need it”
Point is don’t make any instant shopping of anything of high value. And make sure you can afford it before you buy something.
The thump rule is: “CAN I BUY IT TWICE?”
Want new Nike shoes of 4k?
DO I HAVE 8k? So that I can afford the shoes.
4. Cut back on Lifestyle inflation
No matter how much money you make, if you don’t live below your means you will always be broke.
If you can afford a cycle, you go buy a bike.
If you can afford a bike, you go buy a car.
Now, that's a problem!
Don’t get me wrong, I’m not saying don’t improve your lifestyle. Obviously you should. What else is the point of making money if you're not spending it?
Buy a bike, when you can afford a car.
Buy a Hatchback, when you can afford SUV.
Buy an SUV, when you can afford an Audi.
Buy an Audi, when you can afford a Ferrari.
Buy a Ferrari, when you can afford a private jet.
You get the point.
5. Get out of debt
If you're on a student loan, personal loan or credit card over dues. You are bleeding money. High-interest rate loans are to be finished off first.
Not all types of debt are bad. Good debt is one which is generating your cash flow. Let’s say you took a house on loan and rented it out, this is not a bad debt. Because you are generating higher income than interest on the debt.
Saving is not letting money sit in a bank account
People think saving money is setting cash aside into a separate account is investing. Corrected to inflation, your not making any money on minimal interest on saving account. And the normal fixed deposit is not a safe haven for saving money.
INVEST. Make money work for you. This is the only way to financial freedom.
More on investing in the next blog.
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And start taking action toward financial freedom.
STOP LIVING PAYCHECK TO PAYCHECK