This is the second part of a two-part series on managing personal finances. We covered five essential tips for managing personal finance in the first part. In the last point of that article, we discussed why it’s not a good idea to take loans for depreciating assets. We’ll start this article from where we left the last one.
6) Start a Recurring Deposit to Buy Expensive Items
So, if you should not take loans for depreciating assets, how should you buy them?
Simple. To purchase an expensive item like a car, bike, smartphone, etc, instead of burning your saving all at once, plan ahead and open a recurring deposit.
Let’s say that you want to buy a phone which costs Rs 30K. Rather than spending 30K at once, set a timeline to buy the phone and start saving every month towards it using Recurring Deposit (RD). This will have four advantages:
- By waiting for a few months, you’ll realize if you really want that phone or if it was an impulsive decision
- You will inculcate a habit of saving and planning your expenses
- Your pocket won’t feel the burden all at once.
- You will earn extra interest from RD
7) Use Credit Card Wisely
There are many advantages of having a credit card – it is the easiest way to build your credit profile, so that at a later stage if you ever need a loan you get it easily because of your healthy CIBIL score. You also get reward points when you purchase using a credit card, which you can redeem for flight tickets, Amazon vouchers, etc. There is also a new app in the market, called CRED, which rewards you for paying your credit card bills – I have received multiple vouchers from Amazon, Uber, Zomato, Cleartrip etc
Having said that, it is also very easy to spoil your credit profile if you misuse your credit card. Be disciplined in your use of credit card. Spend only what you can later pay. Do not fall in the debt trap by not paying your bill or paying only the minimum balance. When you default on your credit card payment, you not only end up paying a lot of interest but your credit score, which is maintained by CIBIL and other credit agencies, also goes down. Banks can refuse your loans if you have a poor credit score.
8) Don’t Keep All Your Money In Saving Bank Account
Saving Bank account is the dumbest way of investing money. You earn 4-6% of interest on it, while the average inflation rate in India in the last 10 years stands at 6%. This means that if you had kept all your money in a saving account in the last 10 years, your purchasing power would have gone down.
Instead, invest in mutual funds & stocks to beat inflation. If you are new to the stock market, do not rely on so-called hot tips. Do your research before investing. Or, take the monthly SIP route.
Having said that, do keep some amount in your saving bank account also, as discussed in one of the points above so that you can use it at a short notice.
9) Save For Your Retirement
Start saving for your retirement from the very first day. Do you know how much a cup of coffee that costs Rs 100/- may cost at the time of your retirement at 6% inflation rate? Almost, Rs 800/-!
You need to start saving for your retirement early and in a way that you can beat the inflation. Don’t just rely on your company’s PF plan, that won’t be enough. There are many investment instruments in the market – mutual funds, stock market, PPF, etc. – make use of those.
10) Keep a Track of How Your Money is Growing
Nothing will motivate you to earn more & save more than seeing your net worth increase.
I have created this spreadsheet which you can use to track your net worth for free.
Download the spreadsheet here.
Do you have some tips for managing personal finances? Do share it with others using the comment section below. And let us know if you found this article useful and if there is something else you would want us to cover.
When not writing blogs, Anshul could be found working on interesting data analytics problems at Uber. Though he does not have a degree in finance – he holds a B.Tech degree from NIT Jaipur – his interest in the field has made him learn the nuances of personal finance management.