Ramesh is a young software engineer working in a multinational firm, and earning about Rs. 40,000 per month. He has to travel for quite a distance to reach his office. Therefore, he decides to buy a car. The biggest hurdle for him is arranging the finances. Fortunately, banks are liberal in sanctioning loans. Ramesh opts to Apply for a Personal Loan and buys a new car.
The question arising now is whether Ramesh did the right thing in going for a loan to buy a car? Should he not have waited and saved enough money to buy a car without a bank loan?
The prices of a car can go up with inflation whereas Ramesh’s salary might not increase proportionally. Under such circumstances taking a loan is a better option. However, on the other hand, Ramesh has to earmark funds much more than the EMI (Equated Monthly Instalments) every month. It is because the car needs fuel and maintenance. Ramesh has to keep in mind the expenses he would incur on his long drives. These additional expenses can eat away into his savings. Therefore, the latter option also seems right. The best solution is to find the right balance between saving and spending.
Enjoying your life by living in the present is a great feeling. However, you not only need to enjoy your present but also see to it that you have a secure future. Therefore, maintaining the right balance between your saving and spending is essential. The following tips can help you in the process:
Segregate and Analyse Your Expenses
Sit down with your bank statement and draw up a list of expenses, discretionary as well as nob-discretionary. Your non-discretionary expenses include necessary spending like household supplies, food, rent, your loan instalments, Credit Card payments, school fees, and so on. The list can be a long one. The difference between your income and the non-discretionary expenses is your savings. It is the surplus fund that allows you to spend. It is also the source of your savings for the future. Allocate the necessary funds for your savings before spending on your discretionary expenses.
Have a Clear Goal in Mind
Make a list of your goals in the order of their importance. It can be a new house, a car, your wedding, education of your children, insurance, and vacations, and so on. Of course, you have various loan products such as Housing Loans, Personal Loans, car loans, and education loans, and so on. However, you have to save funds to meet the margin requirements.
Yourincome is around 1,00,000. Assume that you pay an amount of 20,000 on tax and rent. It leaves you with 80,000 on hand. Your household supplies cost around 40,000. Hence, you have an amount of 40,000 as surplus that you can use for spending and saving.
Let us continue with the above example. You have 40,000 on hand. At the same time, you have the following goals as well:
You will need around 50,000 for the vacation. Hence, you should save approximately 2,000 per month in short-term debt funds. Buying a house entails you to cough up the margin money. Let us have an estimate of roughly 15 Lakhs as margin. You will need to save about 7,000 per month in debt funds. Similarly, you need to save 12,000 to buy a car worth around 5 Lakhs. Therefore, you need to save 21,000 every month. That leaves you with approximately 19,000 as surplus. You need to plan for your family, health, and insurance. Consider these factors as well before you start your spending spree. Thus, a well-planned budget can work in your favour.
Analyse your requirements and wants. Spending on your needs is vital whereas expenditures for your wants can wait. It is tempting to use the Credit Card and have a great time at the mall. Of course, you should indulge in such activities. However, you should also learn to control your impulses. It can go a long way in making your life secure. Once you feel safe in life, happiness will automatically follow. Therefore, maintaining the right balance between saving and spending is of prime importance.
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