8 December 2022
Money worries have been a part and parcel of life ever before we shifted from the barter system to the more convenient currency system. It’s especially for young adults, who are relatively new to managing money as they begin their careers. Unfortunately, this often results in stress, anxiety and an overall discomfort we’d rather not deal with. This week, as we celebrate International Happiness Day, let’s tackle a persistent source of our happiness problems – money management.
Experience plays a major role in managing money, but most regret not knowing the basic mantras of savings earlier in their lives. The earlier you start implementing some basic, but effective steps in your money routine, the more money you will have effectively “earned”, and could be put to use, thanks to the simple concept of compound interest (more on this later). Keep an open mind, and dive in!
If you have researched managing money before, you may have already come across the “50-30-20” mantra. For the uninitiated, it goes like this:
If you have debts, it is important to pay these off with 20% before you start saving. Aim to pay off your debts as soon as possible, by trying to increase the 20% as much as possible, by cutting down on the luxuries. Once debts are paid off, it is important to invest this money, so they earn you some return while being available for usage when needed. Keep in mind that 30% is the maximum recommended limit for luxuries, and 20% is the minimum for savings.
It is absolutely essential to keep some readily available money worth 2 months’ salary (4 months’ necessities) as an emergency stash fund. We would recommend a high-interest savings account, with minimal annual charges for this purpose. Make sure this is distinct from your salary account to assist in deterring your impulse to spend this money. When creating this buffer, try to spend only on your basic needs and live like you are broke. All the money that you save during this period should go toward creating this buffer.
Despite our best efforts, we can still run into a cash crunch every once in a while. Or we may just want to reward ourselves and splurge on the odd occasion, without having all the cash we need. This is where it’s important to be prudent with debts, by making use of instant loans, offered at a low-interest rate, from new-age fintech platforms. With options like Fibe, you can avail instant loans from right within your smartphone in an entirely paperless fashion, at interest rates as low as Rs 9/day. Of course, aim to pay it off as soon as possible, since EarlySalary doesn’t levy prepayment charges as well.
Track every single penny that you spend. This is perhaps the single most basic task for managing money worries. Budgets not only help track down unnecessary expenses, but they also help you identify where you should rather be spending your funds on. This elementary step, which should cost you 10 minutes of your time to set up, has the potential to generate significant savings. The impulse to spend money may be largely reduced once you form the habit of making budgets and sticking to them.
Read the following statement out loud, and memorize it. “Invest long term. Invest regularly and religiously. Reinvest the returns”. Now that you have memorized this, practice this.
Regular investment and reinvesting your returns are extremely beneficial because of the power of compounding. Assuming an average of even 7% per annum return (compounded monthly), just INR 1,000 invested every month for 20 years along with the returns (total investment of INR 2,40,00), will accumulate to be INR 523,000. On the other hand, if the initial INR 1000 rupee investment is delayed even by 2 years, it will end up a grand total of INR 4,23,000. You do the math.
These are, of course, some basic tips on managing your finances. As you deploy them for yourself, you will not only witness noticeably improved results on your financial well being but also evolve some financial strategies unique to your situation and goals. We’ve already covered planning taxes, making use of credit, etc. and more on our finance-focused blog. Feel free to check them out!