Saving and investing for the future is often thought of as an exercise to be done when you have lots of money. Many of you who have started work recently believe of it as a sacrifice of happiness in the present.
Financial advisors or elders in the family are quick to ask you to curb spending now for a better financial future. They may ask you to save money wherever possible. They will ask you to avoid spending on that coffee at your favourite cafe.
The grouse is that you enjoy a cuppa with your mates at the café. Some of you may love going out on biking trips to new places or travel to different cities. For you, these are small joys of life. The youth in you fights with the maturity needed to hold back impulsive spending and save. That creates a sense of resentment towards saving money and investing.
This column does not offer financial advice. But, it can indeed urge you not to resent saving and investing. You can turn your dreams into financial goals. To achieve these goals, you must invest. The more you do it when young, the better.
Plan your spending
That may sound strange. However, it is possible to work on that. For a month, you can put your discretionary spending on hold. It is the money you can avoid spending. Non-discretionary spending is the one on essentials like food supplies, rent and other consumables.
Then, you should make a list of things you like to do in terms of spending as a first step. You can then create a priority list. Once that is done, put it aside. You can then look at the money left after you take care of your essentials. If you are consistently saving more, pat yourself on the back. You need to then look at putting these savings to use.
Start a mutual fund systematic investment plan (SIP) or open a National Pension Scheme or NPS account. Make a beginning, even if it is with a minimum amount. For those who have enough surplus, you must determine an investible surplus. You can then divide that amount into two parts. The first part is for the short-term goals like creating an emergency fund, buying a car or a gadget. The second part is for the long-term goals like buying a house or retirement.
Once you shepherd your surplus money into the investment world, you can use the balance for that cup of coffee or other activities. Spending money after allocating money for your investments is a good habit to teach yourself early in life.
If you have just started work, start saving first. Unless you have a monthly surplus, there can be no investment. There are only two ways to create a surplus. You can either increase your income or cut your expenses. You can do both, if possible, for a better outcome.
If you are in a profession where remote working is possible, and your skill is valuable, you must negotiate contracts. Ensure that working from home does not mean you work for less than 45-50 hours a week. Your priority should be to earn enough to compensate for the effort you put.
The changing world due to the pandemic has practically made everyone a gig worker. As you move towards multiple jobs, avoid using a credit card. Revolving credit in times like these could prove expensive. You must avoid taking high-cost personal loans or borrowing money from unreliable sources. When you get easy money, it is very tempting. There are convenient equated monthly instalments, or EMI offers for your favourite gadgets.
Borrowing for spending is not a good idea. The latest Reserve Bank of India Financial Stability Report says that personal loans grew by 35.5% in the quarter to March 2021. That is against 11.3% growth from the quarter to March 2020, just before the nationwide lockdown. That means you are increasingly relying on consumer loans to satisfy your impulse purchases.
Borrowing to create an asset like a home or a car is fine. However, borrowing to spend on a new laptop you can do without or on holiday you do not need could set you back in your effort to save and invest.
You can plan for these expenses a year down the line after committing yourself to an investment path.
(The author is editor-in-chief at www.moneyminute.in)
Increase income or cut expensess
The changing world due to the pandemic has practically made everyone a gig worker. As you move towards multiple jobs, avoid using a credit card. Revolving credit in times like these could prove expensive. You must avoid taking high-cost personal loans or borrowing money from unreliable sources. When you get easy money, it is very tempting. There are convenient equated monthly instalments, or EMI offers for your favourite gadgets.Borrowing for spending is not a good idea.