It seems surreal that we are already in the fourth month of the year. Not just that, a year into the pandemic and we are firmly in the grip of a second wave of infections in India.
One of the reasons for these multiple infection waves across the globe, is the refusal of many people to follow appropriate behaviour in a pandemic. Wearing masks, washing hands keeping distance and staying away from crowds are some behaviour protocols we must follow to ensure a slower spread of this highly communicable disease.
Just like good pandemic behaviour can bring a positive outcome to your life by restricting the spread of the viral infection, good money behaviour can bring a positive outcome to your life by enhancing the efficiency with which you manage money.
Keep reading to know what some of these good money behaviours are.
1. Spend less, save more
This is a simple behaviour to understand but a difficult one to follow. Spend less, save more does not mean that your monthly spending should be lower than what you save, rather it means that you should question every incremental, non-essential spend. If it isn’t necessary then focus on spending less and saving more.
In the early part of your life you should embrace this behaviour to improve your savings rate, so that you have a reasonable kitty to cater to your future lifestyle and contingency spends. In your post retirement period, this behaviour helps in preserving value of your money at a time when you are not earning any more.
Moreover, spending on non-essentials can get addictive to a point where you may end up with expenses that are even beyond what you earn. This can become a burden if it continues and you then start looking for loans to cover the spending that not only you haven’t saved for but also can’t afford with your current income.
2. Invest, don’t store
Savings start to mean a lot more when you invest in wealth creating assets. Leaving your savings in a bank savings account or even a fixed deposit for long periods of time is a way to store your money rather than grow it. Over time money loses value thanks to inflation and storing it in low yielding bank deposits will not help you grow its value.
You need to find financial securities which will help grow the value of your money beyond what inflation takes away. This requires a focus on long term assets like equity and even real estate if you have the starting capital (invest without a loan).
Long term assets will grow your money if you leave it invested for at least a decade or more. Investing in growth assets is aligned with wealth creation as opposed to leaving money in a bank which is simply storage, where value is eaten away systematically with the help of inflation.
3. List out your goals
Talk about what you want to achieve with your money, your financial goals and money objectives. Everyone wants to lead a comfortable life, but beyond that if there are any specific life goals you want to focus on then think about writing them down. Don’t stop there, assign a desirable monetary future value to these life goals.
Thinking about money in terms of what you want to achieve in life, makes it easier to plan and invest it accordingly. It also sets expectations of what you would like to receive from your investments.
This clarity will help you reach your financial and life goals in a systematic manner with the monetary support you need.
4. Stay away from loans
If planning and investing is not your way to address future financial needs, you will find that eventually you are going to need the help of loans. Loans of all kinds are readily available; whether you want to buy a house or a phone, everything can be done with the help of borrowed funds. However, loans are not free and they come at serious cost. While housing loans are perhaps the lowest priced, loans for consumer durables like electronics and credit card overdrafts can come at a severely high cost.
The ease with which you can get a loan today, tempts one to buy more than they can afford with the help of a loan.
What we don’t realise is that all the part repayments pile up fast and soon you may not be able to afford even that from your monthly income. What happens if there are sudden brakes on your job and you are not able to earn as much anymore?
Loans work if they are long term in nature and used for building assets whose value will most likely appreciate in future.
However, when you start piling up loans for items that you will consume or use on a daily basis with no value addition, it just shows that you are living beyond your means and buying what you cannot afford.
Building good money behaviour will help you utilize your hard-earned money in the most efficient manner possible. Being aware about your money behaviour is the first step even before you start to embrace the good behaviour.
Money means different things to different people, but for all of us money is needed to support our lives and lifestyle. That is why embracing good money behaviour for positive outcomes is an important realization for us all.