We often hear people complain that their salaries do not match up to their expenses. “Story of my life,” you think. Then you grudgingly think about your workplace, your manager, and the HR team with a feeling of hopelessness.
Has this been the case since your first job? Did you always feel that with an extra Rs. 10,000 or Rs. 20,000 you’d be able to sort yourself out very nicely. We know that extra money always helps. However, the case in point is this – your salary has doubled or tripled since your first job, your personal finances however, still seem to be in the doldrums. Your debts are bigger and savings almost nil. In spite of the salary increments your income never really seems to catch up with your expenses. Hmmm…quite mysterious.
Let’s just cut the drama here. It’s human to blame your surroundings and external influences for unhappiness and discord in your life. But for all things bright and beautiful you eagerly take the credit. Time to reverse the phenomenon.
So, who’s responsible for your poor finances? Not your company, not the paycheque. It is YOU. Put an end to the blame game and take a look at where you are going wrong. Perhaps you don’t have a budget in place or more likely you equate an increase in salary with the liberty to spend more. Do you think about savings, investments or spending smart? Never occurred to you, right? We thought so. Hence, in spite of an increase in your salary, the relationship between you and your finances has always been like the one between scrat and his ever elusive acorn in Ice Age.
Let’s get that acorn once and for all. It requires a little bit of strategy, a pinch of sacrifice and dollops of perseverance. We have identified 10 prime reasons why people feel poor in spite of a fat salary. Let’s shoot them down one at a time.
You have the money, why not put it to good use, right?
- Higher Salary ≠ More Spending
What’s the first thing that comes to your mind when you get your yearly salary hike? Shopping, a holiday, buying a car? The well-funded advertising industry has trained us to think of spending before saving. Spending has become such a problem that people indulge in ‘impulsive shopping’ just to soothe their nerves. Unfortunate, isn’t it. But do you know that it’ll do you a world of good if you can fight the urge to spend, the moment you get some money in your bank account.
Look at the nice number flashing in your bank account. Looks pretty, doesn’t it? It’s your job to make it better. When you get a salary hike think of it as an opportunity to multiply your funds. You must have heard that money attracts money. Well, it doesn’t happen automatically. You need to place your money in the right areas for it to attract more of its kind. We understand that you want to raise your standard of living, but don’t you think the raise has to be sustainable? With your next salary hike first save, then invest, and then spend. Guess what? With a higher salary you can invest and save and still have a healthy surplus left for discretionary spending. You just need to be careful when following the order. If you spend first, you will always find yourself at odds with your finances.
- Look Into The Future
Most young people, today, have a very casual opinion of the future. They take each day as it comes. This attitude may work wonders in some situations but with regard to money some foresight is imperative. Many people who live for the present, find themselves broke when they need money the most. Then all they can do is think remorsefully of better days from the past. Don’t give life the opportunity to teach you such a harsh lesson. Be a little smart with money from the beginning and let life reward you with pleasant surprises. You don’t have to sacrifice your present needs but do stash away something for the future. Even ants have the sense to save for rainy days. When you see money, let your powers of reasoning prevail.
When talking about the future, an oft used phrase is, ‘we’ll see’. But when an emergency comes knocking, all that you’ll see is panic and confusion. If you wish for a secured future, figure out your finances today. Remember the old adage – a penny saved is a penny earned.
- Start Investing, PLEASE!
No matter how much you earn, you will never have enough to fulfil all your dreams if you don’t invest. Besides, a flourishing retail industry doesn’t exactly help curb our needs. So what is the way out? Investing smart. Do not think that you are too young for it. Start investing as early as you can. It’ll help you beat inflation, keep you secure during economic and financial downturns, safeguard you in emergencies, and – now listen carefully – get you rich. Yes, rich! You want to be rich, right? All billionaires and millionaires have one thing in common – they invest their money and take calculated risks. We know that you want to live it out in style. Well, nobody’s stopping you. But don’t let fancy be a fleeting situation. Spend wise and invest smart – fancy will stay for a lifetime. A friendly reminder: first invest then spend. Not the other way round.
- Is It On Record?
It’s your money, you earned it, and hence, you are also accountable for each penny spent. Accountable to whom? To yourself, dummy. You must be accountable, more so because it’s your money. If you respect your money it’ll reward you by multiplying itself. One way to be accountable is to keep accounts. Keep a little account book handy or download one of those apps to note down expenses. Now use this to note down every expenditure you make. Even the little ones. You’ll notice that your day-to-day small expenditures stack up higher than those odd expensive purchases. Never underestimate the power of common expenditure. Keeping a record of your expenses has many uses. You’ll know when you are about to breach the red line on spending. You’ll also be able to spot areas where you might be getting a little too liberal. Keeping accounts is the best way to keep an eye on your finances.
- Heard About Budgeting?
Yeah, budgeting. What is that? That’s a trick to stop your money from vanishing. That phrase you use at the end of every month, “I don’t know where all my money went!” It’s lack of budgeting. If you budget, you will know where you money went. In fact, your money won’t go anywhere if you draw up a smart budget. Now what is budgeting? Budgeting is knowing how much you earn and then divvying up the loot between different expenses like groceries, discretionary spending, EMIs, investments and savings. How smartly you plan this, is a skill which comes with time. Trust us, it’s not tough. It does require determination, though. You know, to stick to your plan.
Let’s say you keep 50% of your money for discretionary spending and use the remaining for other activities. Well, not very nice! You’ll see your budget coming crashing down. Set aside a bigger portion of your income for savings, investment, and debt repayment and then divvy up the balance for daily expenditure and discretionary spending. The second plan is a sustainable one. Initially, you might not have a lot of money to splurge and chill but with time this will improve. Just stay strong. The dress you can’t afford today will come around again when your pockets are better equipped. The universe has a way of rewarding people who stick to their budgets.
Additional Reading: 7 Unconventional Ways to Make Money
- Needs, Wants, Personal Finance – Confused?
Needs and wants are endless. Personal Finance – who thinks about it till a financial emergency surfaces? But, for a healthy financial life it is very important to understand the difference between the three concepts. They have similarities but they are not identical. Needs are your life basics. You need to meet your needs to live a healthy and happy life. Needs are food, clothing, and shelter. Wants are things and services that raise the comfort level of your life. For example, a luxury sedan, expensive jewellery, and exotic holidays. Wants are the biggest enemies of financial well-being. It’s often wants that we are not able to resist and, hence, end up spending all that we have. Many a time people give up their needs to spend on wants. Such is the power of wants. Sometimes needs and wants cross paths. What is need may become a want. Example, food is a need, but splurging on a gourmet meal is a want. If you are able to understand the difference between the two, rest assured, you finances will never go awry.
Now what is Personal Finance? This refers to your savings and investments. It’s also how you manage your needs and wants to keep your savings and investments healthy.
To keep a balance, spend on your needs, keep some savings, make kickass investments, and then use the remaining funds to fulfil your wants. Wants are not always bad. Life would be gloomy without a little bit of fun. A good way to indulge in wants is to use it as a motivation tool. How do you do it? Set a financial goal and then mark it with milestones. Each time you achieve a milestone give in to your wants. This will give you the rush to continue working toward your next milestone.
- Oh crumbs, debt! Ignore!
Ignoring your debt is one of the biggest mistakes you could ever commit. It’s a sure-shot way of ruining your relationship with the lender and all other lenders. You are effectively closing all doors of help. Now, how is repaying debt a better road to personal finance? When you take a loan you agree to pay a certain rate of interest on it. This definitely creates a dent in your pocket. But if you don’t repay your loan on time, additional charges are added to the interest rate. Allowing these charges to build will not just dent your budget but burn an irreparable hole through it. So, if you have taken a loan, try not to miss loan repayments. In fact, try to close your loan before the tenure runs out. This way you save money that would otherwise go toward paying interest.
Another repercussion of not managing your debt on time is a harsh blow to your Credit Score. This is an important score and it’s better if it’s in the 750 and above range if you’re thinking about getting financial help from banks and financial institutions in the future. Think about that Home Loan or Car Loan you might need to take sometime in the future. Even loans from friends or family should be repaid on time. You don’t want to burn any bridges, do you?
- Buying The Next Cool Shiz!
Gadgets are uber cool. Gadgets are also uber expensive. But it’s so tempting to buy the next cool phone. Very well, what’s to be done? If you are a gadget freak, you’ll most likely sell your kidney to get the next piece of tech on the shelf. So how do you manage your finances in a situation like this? Well, if you really think you need to buy the next new gadget out there, then make sure you exchange your old one for it. No point building a tech shrine in your house. Anyway, obsolete tech has little resale value. Nevertheless, it’ll help you get a discount on your new toy. For others, here is a lesson. Keep your gadgets in good condition and service them from time to time. They will last longer. Also, pick your gadgets wisely. Some tech pieces are ahead of their time. Buy them. They will last you longer and you won’t feel left out in terms of owning what’s in trend.
- I Am A Philanthropist
Very nice. Are you Warren Buffet? No? Then maybe you need to go easy on this one. Philanthropy is good as long it’s within your means. We are guessing that you are one those people who can’t say no to friends and family when they come seeking financial help. Perhaps, you disturb your own finances to meet the needs of others. If you do this then you are naïve and not nice. See the difference? It’s good to help others but make sure it’s not at the cost of your own well-being. Also be mindful of whom you help. Giving financial aid to people who conveniently abscond with the money is not a good thing. Also, don’t ever feel shy about asking for your money back. You need to stop being an over-the-top giver and learn to say NO. If you don’t, you’ll see yourself slipping into poverty and others getting rich at your expense. What an unfortunate situation!
Additional Reading: Should You Be Lending Money To A friend?
- The Gambler
Taking risks is good but we never said gambling is the way. Sure, people have made a fortune with it but, they also had a fortune to spare. If you really want to get risky, study the stock markets, look at high-risk Mutual Funds. They are much safer bets than gambling. Moreover, you can get help from experts to manage these investments. They take a cut but at least promise returns. Lucrative returns. If you really want to try the slot machines, use funds from your discretionary spending heap. But swear that if you lose it all, you will not dip into your savings or break your investments. We advise instead that you stay away from this activity. Gambling with money sounds exciting, but the results are often very depressing.
Additional Reading: Your First Steps To Investing In The Stock Market
These are the 10 most common reason why people are poor despite a fat salary. We hope that the article answers the universal question, “Where did my money go?” Do leave us a comment if the article has been of help. We would also be glad to hear your stories of personal finance too. It just might be the inspiration for our next blog article.