Browse Tag: #overspending

A high income does not guarantee a RICH YOU

A high income does not guarantee a RICH YOU

Almost everyone among us aim for a higher income. We all work very hard towards achieving the fat pay package which we always dream of. For most of us, it’s a straight equation – more the income – more the bonus and we can be rich throughout our life and can retire rich in peace with loads of money.

high income

 

 

Unfortunately with respect to finances, the equation is not so straightforward and simple. Had it been so straightforward, guys with high salaries would have become filthy rich and all of them would be happy by now.

More money, more income is sadly not the answer to financial woes of human beings.

Don’t get me wrong!

Here I am not denying the importance of the high income for an individual. A high income gives you a head-start in planning personal finances for you. It also gives you distinct advantages in the process of building wealth.

Here are the 5 indicators which points that you can not be rich even with the high income

  1. You are trying to keep up with joneses : This one is a major pitfall. While uncontrolled spending can leave anyone broke, keeping up with joneses will never allow any high income household to become financially responsible. whether  we are working in corporate jobs or living in a tony neighborhood, there is a lot of peer pressure which compels us to own latest cars, expensive homes, latest gadgets, to party every weekend etc. Easy credit availability by the banks also fuels this mentality and the advertising ensures that you feel outcast if you do not buy the latest gadget or the fastest car.financial peer pressure

    Do you often succumb to Financial Peer Pressure?  

  2.  You think investments are to be done only when you are nearing retirement : Many individuals are highly qualified in their respective streams. They did well in studies, mastered the art of their trade and earn a lot. Many are doctors, engineers, designers – earning high incomes. But they seldom pay attention to investments just because of ignorance. Their incomes are high, their expenses are high. Their monthly income is usually equal to their expenses. Since their expenses are met month on month, they do not think of investments. Also they do not feel the need of taking consultancy on the investments.

    When it comes to decision making about finances and investments, most of us like to postpone it to some other day. This stands true not only for decision making about investments but also for evaluating existing finances. Unknowingly, one ignores an important fact that there is a REAL cost which is associated with the delay in investments. Most of us tend to get away with this as there are no immediate visible effects of these delays. Nor we proactively calculate the potential damage it can cause.

    If you keep delaying, you need more amount as investment at a later stage to achieve desired funds. The early you realize this, better it is for you. You must know how to use the magic of compounding to your advantage.    delaying your investments

    Delaying investments can cost you DEARLY 
     

  3. You keep accumulating depreciating assets : When you have a high income, it’s easy to reach your financial goals of life and retire rich with sufficient money. Unfortunately most of us start pouring money towards depreciating assets. We tend to spend money on the asset class which loses its value quickly. We fail to identify these money drains and our money keeps losing its value over time. 

    By the time we realize this, it’s usually too late and a lot of money had already gone into the drain.

    Latest cars, high end furniture, multiple vehicles, latest gadgets, luxury brand accessories are some of the items that comes under this category.    Car is not asset

    Your Car is not your ASSET ! 
    Financial success : It’s not about the Stuff you gather     

  4.  Your fixed expenses are very high: If you compliment high income with less expenses, the leftover is the investable surplus. This investable surplus can be systematically invested to build wealth.

    If the income is high and so the expenses, you will not be left with investable surplus. The lack of investable surplus will never let you accumulate wealth. The major expense month on month is the fixed set of expenses. Expenses like home loan / mortgage payments, monthly payments towards car and any other vehicle, utility payments etc.

    A bigger house translates into a higher monthly payment for mortgage, higher utility bills, higher maintenance cost, higher home association charges. Same stands for cars. A bigger car translates into a bigger monthly payment, a bigger insurance premium, a bigger maintenance cost, a bigger wear and tear costs.

    One need to identify fixed monthly costs and try to keep them at minimum. Buy the right house you need, do not overspend. Same stands true for your vehicle. 

    Overspending - hurdle in personal financeOverspending – the biggest block in financial freedom
    What are money leaks? How to find out your money leaks and plug them?)
     

  5.  You do not budget and you think that you are managing money well : Poor spending habits, uncontrolled expenses can be a disaster to your finances. They can even put you in a really bad situation financially.

    But if you are not budgeting and not tracking your expenses, it can also cause a big disaster to your finances. It can not only put financial stress on your retired life, but also your day to day finances can get affected badly.

    Tracking expenses becomes more important when your income is high. In case of high expenses, it’s good to track expenses and find money leaks. If you do not track expenses and budget, you can easily blow up your monthly income and will never come to know where all your money went. This will not leave you with any investable surplus to build wealth and achieve financial independence.

    So, take charge of your money. Do not count budgeting and writing expenses as a burden. If you start budgeting and writing expenses, you can avoid many common issues and problems related to money which you are facing in your day to day life.

    Simple Budget
    A simple budget can save you from 5 big troubles

    Here is how to make a simple budget? 


    Always remember

 

 

  • Money alone doesn’t bring happiness but it sure can help
  • You only have to take care of your money and ensure that it grows – none else will do it unless they have their own personal interest attached to it
  • Money can not solve all your problems. Yes but it can help you sail through most of your problems

 

Happy Investing !!!

 

Overspending – the biggest block in financial freedom

We dream about having nice things, big cars, nice homes, latest gadgets, fancy cloths. The moment we start working after graduating from university, we start accumulating the things we dreamt as a kid or student. Thanks to the media around us – be it print media, social media, electronic media, TV channels blaring advertisements 24X7. They make us convinced that if we do not owe the latest, we are not human in sync with the world. The tone of modern day advertisements is that we are inferior if we do not have the latest gadget, latest fashion.

Overspending - hurdle in personal finance

 

Once the income starts coming in Post University, we welcome all the stuff, toys to keep us happy. We submit ourselves to frequent outings with friends and relatives and many more things which we could not do being a student. Owing the stuff and frequenting restaurants is considered as a new COOL. Suddenly we feel urge to buy new automobile because all our peers have one. We want to outshine our peers hence we want the best automobile, fully loaded with all amenities – just to show off and in our heart we feel “we deserve it”. We look to get hold of the well deserved large house in the toniest neighborhood which we were eying from long. Consumer credit is readily available. This gives us a good excuse to buy the latest 80 inch 3D LED. Obviously we need these gadgets to flaunt ourselves in our circle. Also this reflects in the society that I am cool and doing well in my professional life.

We try to do everything except saving & investing money. It’s always good to pretend that we do not have sufficient income to start investing now and we will have much better success with investments when we have higher income than what we are earning now. A big chunk of our earning is dedicated to the monthly payments that are going out for the nice house, a big car, 80 inch 3D LED and many more gadgets which we have accumulated – just to show off that we are doing well.

This tendency to spend salary as and when it comes makes us struggle financially month on month. Every month we have a list of TO BUY and the list never gets trimmed. One item leaves the list, another item occupies the place. So what can we do if we are making 6 figure incomes and still struggling to pay for necessities to survive day to day life? We must put a cap on non – essential spending. Cut it down so that we have precious cash saved for essential spending and investing. It will hurt for a month or two, but we will not die if we do not have latest iphone 7 in our kitty or if we do not have the latest Honda or Toyota parked in our garage.

Unless we stop spending recklessly, we will not come to know what is essential and what is non essential spending.

A simple plan: How can we check overspending

1. Make a list of monthly expenses without which we cannot live like Home loan EMI (mortgage), electricity bill, maintenance charges, telephone bill, and internet bill. Mark them as NEED

2. In another list, keep all expenses which are our WANTS, like eating out, buying latest phones, new cloths, and outings during weekends etc.

Now once the list is made, strictly write every penny that you spend under respective list. Over a month or two you will get a very clear picture that what you are spending on essential items and what is being spent on non-essential. Cut down on non essential, put brakes and see the magic. In a couple of months you will have a very positive cash flow and loads of money freed up for investing.

This is basic money management, not a rocket science. We need not to be an expert in finance to make money work for us.

Overspending has to be tackled at the earliest if you are not having a positive cash flow month on month. Overspending can ruin your retirement plans and can even upset your life’s balance sheet. If you wish to retire early to pursue your passion, if you are looking for financial independence, if you want to generate passive income so that you do not have to depend on your day job – you must sit down and do the basic exercise to assess your expenses and come harsh on overspending.

Believe me; cutting down overspending can work miracles on your cash flow. You can free up a lot of money which can be invested judiciously to generate good returns over a period of time.