3 key pillars for a successful financial life - Avoid Debt, Increase Savings and Effectively Manage Expenses

While managing your expenses is actually the best way to avoid debt, it can also sometimes turn out to be an uphill battle. It is therefore imperative to have a proper plan in place, which will help you avoid getting into a debt trap.

Listed below are a few helpful tips on how to cut down on your expenses, avoid financial pitfalls, and stay out of debt in the process.

How to manage expenses and clear off debt –

• Make a Budget:Develop a realistic budget and make it a point to stick to it. Review your budget periodically and revise it whenever deemed necessary. There are several simple ways to develop a budgeting system, such as spreadsheets or online software and applications. These programs will help you determine how much you are spending and saving.
• Purchasing based on sheer impulse:It is necessary to curb your impulse buying habits. If you see something that you want to buy, don't rush into it unless there is a specific urgent need! Go home and mull it over. If you do this, you probably may not return to the store to make the purchase. Ask yourself if you really need this and chances are that the answer is that you probably won’t.
• Limit debt: Limit the amount of debt that you take on. A basic thumb rule is that your monthly payments on your debts (not including your mortgage) should not exceed 20 percent of your take home pay.
• Pay off debts in full:Charge only those items that you can pay off in full when you receive your credit card bill. Don’t get into the habit of just paying the minimum payments due on your credit cards. Such an irresponsible habit means that you’re continuously spending more than you have and you are accumulating additional debt due to higher credit card interest rates.
• Mortgage and rental payments:Keep your mortgage or rent payments reasonable. Don't burden yourself with huge housing costs and only take on obligations that you can easily afford now. A general rule of thumb is that rental payments should be either one-fourth or one-third of your monthly income. For example, if an individual makes Rs. 60,000 a month and a rent price of Rs. 15,000 or less will allow him or her to save quite comfortably.
• Develop alternatives to spending money:Make it a regular habit to develop alternatives to spending a lot of money. Instead of dining out, go for a walk and have a picnic. Rent books and CD’s at the library instead of buying them. Try to take advantage of promotions which are currently happening in your city. Just to cite one example, many cities have a day where museums are free or even half off.

How to invest wisely and save money?

Review your budget and check your progress every month. Not only will this help you stick to your personal savings plan, but also help you to identify and fix problems quickly. These few simple ways to save may even inspire you to save more money every day and achieve your goals faster. Make prudent investments. Avoid investments that promise unrealistic high returns, especially penny stocks, junk bonds, and speculative deals.

• Plan for savings: Now that you’ve made a budget, create a savings category within it. Try to save atleast 10 to 15 percent of your take-home salary. If your expenses are so high that you can’t save that much, it might be time to cut back. To do so, identify non-essentials that you can spend less on, such as entertainment expenses and dining out related expenses, and find ways to save on your fixed monthly expenses.
• Decide on your priorities: After your expenses and income, your goals are likely to have the biggest impact on how you allocate your savings. Be sure to remember long-term goals—it’s important that planning for retirement doesn’t take a back seat to short-term needs. Learn how to prioritize your savings goals so you have a clear idea as to where to start saving. For example, if you know you’re going to need to replace your car in the near future, you could start putting money away for one now.
• Pick the right tool: Apart from savings in fixed-income and traditional financial instruments such as Fixed Deposit, PPF, NSC or NPS, it is also advisable to invest in mutual funds through Systematic Investment Plans (SIP). The investment in SIP takes place each month irrespective of the market conditions. Anyone can benefit from both an up market as well as a down market.
• Plan for taxes: Tax planning is an important aspect of building wealth and one should ensure that your financial plan does not remain stagnant. Start investing from an early age via the ECS and SIP route.
• Don’t cosign or guaranty: Don't cosign or guaranty an obligation for someone else. If that person doesn't pay, you will be responsible for repayment.
• Obtain adequate home and auto insurance: Be sure that you have adequate insurance on your home, its contents, and any vehicles which you may have. An individual can end up having major bills if he / she does not have adequate insurance. For example, if you were involved in a major car accident due to a fault of your own and do not have adequate insurance, you may be responsible for most of the cost of repairs and damages out of pocket.
• Obtain adequate health insurance: Be sure that you have adequate health insurance coverage at all times. Health bills can pile up and this could run into several thousands or lakhs of rupees. It would be in your best interest to have health insurance to protect yourself from being obligated to pay expensive health bills. Nowadays, it is also important to have an accident disability insurance and an insurance cover against critical illnesses.

To put it in a nutshell, you should get your finances in order so that you can reap in the benefits for a long period. All you need to do is to prepare your budget, note down all your expenses on one side of the sheet of paper and your income on the other side. The sum of all expenses should be less than the income and if this is not the case, then reduce your costs immediately. Always stick to your budget by tracking your income and expenses periodically. Follow a strict budget to achieve your financial goals. Divide financial goals into short term, medium term and long term goals. A good financial plan helps you to understand and predict future expenses better. Start saving as early as possible and benefit from the magic of compounding.

Wishing you all the best with your finances!

Founded in 2005 by new–age entrepreneur Abhishek Bansal, the Abans Group has evolved into a globally diversified conglomerate, providing expertise in Broking Services, Non-Banking Financial Dealings, Financial Services, Agri-Commodity Services, Warehousing, Realty & Infrastructure, Gold Dore Refinery & Manufacturing, Trading in Metal Products, Pharmaceuticals, Software Development & Wealth Management. The Group is a comprehensive financial and non-financial services and solutions provider, aiming to provide end-to-end solutions to its clients.