Having a high paying job is no guarantee for a lifetime of financial stability. There are scores of stories of the rich and famous who went bankrupt living a flamboyant life, splurging al the wealth they earned. There’s a lesson in their mistakes for even the humblest of us: how you spend matters more than that you earn.
If you’re in your thirties and forties now, chances are that you work overtime so you can live a little better. Many of our generation are thus breaking away from the conservative financial practices of our parents. However, it’s easy to go overboard in trying to do so. Here are a few suggestions to help ensure a good balance. Getting value for our money should become a way of life for Indians who are earning more than their parents could have dreamed of.
Buying a house is the first step towards a better lifestyle for any earning adult. Most people would like to buy a house as close to their place of work as possible. However, this makes sense only if the job requires us to be at the office each day. Besides, in the initial years of one’s career one may need to experiment with different companies before settling down for a long innings. If you are willing to take a loan and buy a house, go for something centrally located, which will cater to the long term needs of your family.
With IT related jobs growing in number, an emerging trend is for people to work from home. Companies increasingly consider this to be acceptable. If your work situation is like this, your criterion for choosing a home too, will change.
Investment portfolio is not the only aspect of your finances that may require adjustment – your home loan could stand to benefit from refinancing your mortgage. If a reshuffle can reduce your interest outgo, then it’s certainly worth the trouble. But take a careful look at what the trouble entails. If transaction cost a fees charged by the refinancing institution nullify the benefits of the lower interests cost, refinancing is not worth the trouble.
Also, consider whether reshuffling now would be better than at some other time. The most appropriate reasons would be a job relocation or the need for bigger house in the next couple of years.
One should draw up a savings and investment plan as early as possible in one’s earning career. Some of the things financial experts emphasize are: putting money in growth options that offer compound interest, building up a comfortable retirement kitty, and having adequate insurance for yourself and your dependents. Keeping your short and long term financial plan make the investment plans work. Figure out what you want to put into equity markets and through what route.
The array of options each with its pros and cons, may seem confusing, but remember judge your own needs. It may be worth paying consultations fees to a financial planner to gain clarity on how to meet your needs. Learning on your own, through trial and error, could prove expensive, and difficult to undo. But, of course you’d need to find a financial planner you can trust. Not everybody who seems to have a financial opinion is the right financial advisor for you. Make sure the planner you hire is not an agent for a particular company as this would prompt him or her to recommend only that company’s products, even if they are not the best match for your needs. A rule of thumb is to stay away from schemes whose investment plans you cannot understand.
The older generation may recommend keeping a minimum of three months worth of expenses in a bank savings account. However, perhaps you prefer keeping the money in an option that earns higher interest. Be sure though, that it’s in an instrument that assures instant repayment options. Should an emergency come along you don’t want to be kept waiting. If you have kids, or rely on a single income, double the emergency fund recommended above. Have this emergency fund available at al times because one does not know when an emergency can occur.
A car figures quiet high on the priority lists of many people today. May we suggest a little change here; put the car lower on your list than all the essentials discussed above. Although the market for used cars is doing more brisk business than ever before, it’s best to buy new, especially if it’s your first car. A new car’s insurance and warranty could stand you in good stead.
Resist temptation —