By Ankit Khanna on The Capital
Imagine the day you received your first salary or your first cheque when you started your own business. I bet you must’ve had a long wish list of things you wanted to buy for yourself and your loved ones. Hadn’t you?
Life changes when you start earning. You want to try things you’ve never done before and visit places you’ve never been to. In doing so, you often end up spending a major percentage of your total earnings.
It feels good to hang out with friends and plan a vacation with your family. It’s important to have fun. But it is also important to manage your finances. Most of us start thinking about savings only when we’re in urgent need of it. In fact, many of us don’t even like the idea of having a financial backup until there’s an emergency.
All the banks and financial institutions are offering loans on easy EMIs, low-interest rates, and no processing fees. They’ll make you feel that there’s no need to manage finances at all. You don’t need to save because you’ll get a loan approved within a few minutes (A big thanks to technology). And that’s how you start falling into an endless pit of debt from which you may never recover.
In the 21st century, money matters more than anything. Gone are the days when the time was money. Now money is time. People ask how much you earn so they’ll be able to calculate the respect they should give you. Therefore, start saving your money and avoid making any mistakes that might cost you your future because a problem always comes unannounced.
There are some things you may not consider as mistakes, but they might cost you big in the future. I am sharing a list of all such things that you must avoid while earning.
1. Getting A Home Loan
If you’re living in a rented house, you must find all those advertisements about home loans attractive. Why pay rent when you can pay an EMI and have your own dream home? Isn’t it true?
No, it’s not. Buying a house on an active home-loan belongs to the bank. You’re just a tenant in that house until you pay your loan amount in full with an interest. I’m not saying that buying a house is a bad option; it’s obviously better than living on rent. However, getting a loan and being liable to pay a big EMI every month irrespective of your financial condition wouldn’t serve any purpose.
If your monthly saving before taking a home loan is at least twice the EMI of the loan you’re applying for, then only you can think of taking a loan. Otherwise, there’s a huge chance that you may turn broke before being an owner of that house.
2. Buying Things You Can’t Afford
Being able to purchase something doesn’t mean you can afford it. Let’s say I earn Rs. 50,000 per month. It means I can go ahead and purchase a gaming console worth 50K on the first of any given month. But does this mean I can afford it?
There’s a common saying that “You can’t afford something unless you can buy it twice.” That’s right! Many types of research show that the people who follow this basic rule tend to have lesser financial problems compared to those who don’t.
3. Emotional Spending
Imagine you’re browsing your Facebook feed and see a friend posted a photo of his new smart-watch. Now you have an impulse to buy the watch that you didn’t even know existed a few seconds ago. That’s what we call emotional spending.
Most of us possess 5 out of 10 things that we don’t need at all. We either have them because a friend had them too, or because the marketing strategy of those products was smart enough to convince us that it would be cool to have them.
If you don’t believe me, look at any 10 things you bought for yourself and count the things you need out of them. Next time when you plan on buying something, think before you shop. It may help you save money for something you really need in the near future.
4. Lack Of Financial Planning
Financial planning is as important as career planning or health planning. Setting up your financial goal will not only help you plan your future, but it will also help you save more every month.
Start by making an action plan depending on your current financial situation. Track your spending and plan your goal accordingly. A small step that you will take today will make a big difference tomorrow. It may seem unhelpful in the short term, but it will definitely help you in the long term and emergencies.
There are some great mobile phone apps that you can download to plan your budget and set up your financial goal. Few of them are Monefy, Mobills, and Andromoney.
5. Destructive Habits
Bad habits like drinking, smoking, and gambling will not only affect your health, but they’ll also hit your pocket faster than you can imagine.
There are hundreds of articles written across the internet calculating the amount of money you’ll save every month or year by quitting these habits. However, none of them is convincing enough to make people quit these habits. Why?
It is because spending only a few bucks a day to satisfy your urge of nicotine or alcohol doesn’t hurt. Similarly, playing a game of poker with friends before reaching home won’t cost you a fortune. But when you’ll calculate the total amount of capital and time wasted on these habits over a course of a year or a decade, you’ll be amazed to know how much you could have saved for your dream car or a dream home.
5 Costly Mistakes You Should Avoid While Earning was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.
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