Job loss, Leave without pay and salary cuts are becoming the buzzword since the advent of corona crisis as we witness an increasing number of people desperate to get employment. According to a report by LinkedIn, most of the hiring is limited to customer service and home delivery personnel and in healthcare. Rest of the companies are reevaluating their businesses, trying to realign it with the changing economic environment with a focus on rationalizing work force and reducing costs.
Keeping in mind that this is a cyclical process occurring every 10-12 years or so with the last such event happening in 2008 and in 1998-2000 before that, it is important to develop better financial habits to keep ourselves afloat even in a crisis like this. When the economy is growing at a rapid pace, we tend to indulge in financial behaviour, which although may not be rational at all, can still be sustained in an environment which does not punish spending illogically. However, as the economy slows down, such foolish behaviour can be disastrous leaving us with nothing as we grapple to even accrue the basic necessities of life.
Developing financially prudent habits thus become critical to our survival. One thing our elders always emphasized upon was to never spend above means and this holds as much relevance in the current financial milieu as it held earlier. Some of the basic habits we can follow to manage our finances better-
- Always spend after first paying your debts and putting away some savings.
- Never buy to show off. The content on the TV will remain the same irrespective of the screen size; however, the expense can definitely dent deeper financially.
- Avoid taking debts/loans. If it needs to be taken to make use of the right investment opportunity, reduce expenses to pay it off sooner.
- If you are running an EMI, try and pay at least 1 or 2 extra EMI’s every year, this will not only reduce your tenor by a significant number but will also lessen the interest outflow.
- If you earn 1 Lakh per month, live like as if you earn 50K or less. Increasing expenses is always easy; reducing them is the tough part.
- Always keep emergency funds. Earlier it used to be in the form of cash to manage health emergencies, the same however, can be deposited in a bank account now. One thing, you can do to restrain yourself from using it would be to put away the debit card or chequebook linked to that account in a chest which you open only when you whitewash your house.
- Always look for better deals. I have personally been able to get a reduced price by just asking for it without any bargaining and there is no harm in asking.
- When you pay or make payments online, you can also search for cashbacks and discount coupons. There are many sites you can register on to get these coupons.
- Identify your – Must Spend, Good to Spend, Avoid Spending categories and observe the expenses in those categories. Once you write it down, avoiding the unnecessary expenses are easier.
- Lastly but importantly, set aside some money to indulge which you have managed to save last month by sticking to your plan. 20-30% of that saving can be used to reward yourself for staying true to your plan. The more you save, the more you can spend. Rewarding good habits strengthen them and gradually they become natural to us.
This is just an indicative list and I would encourage you to add more to it.
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