10 Money Things You Should Not Need To Be Told. But Do.

Some fundamental personal finance advice.

These are home truths and might sound obvious. But, when I look around me, I can see that there is a need to state these. Maybe people are unable to see the long-term impact of decisions or they just haven’t thought it through.

So, here goes, my small bit for posterity 🙂

1. Don’t spend more than you earn (yeah, obvious!)!

We live in an era of easy loans for salaried employees and EMIs make it simple to buy things. You can easily spend far more than you can afford to. Do this, calculate the amount of interest you pay monthly. It is easy — add up all the interests — home loan, car loan, credit card interest, any other EMI purchase (mobile / TV /holiday? ) — if you have not really been paying attention to it — it should be a shocker. 

If you look at any of these loans closely, you will see you are paying close to 2x the actual borrowed amount over the life of the loan. There is no such thing as ‘free’, read terms.  

2. Buy things when they are cheap — ex. During sale times

This requires planning. It is a little more effort than just buying something on the spur of the moment (and yeah, I am pretty bad at this, but blessed by a spouse who is very good at it, so it averages out). Clothes, electronics, things like gifts (Especially the generic ones which you use when you visit someone) — it makes sense to plan and buy these at sale time.

Make the most of sales, especially cashback and rewards, read the terms for the sales carefully and stack your purchases to get maximum benefit.

3. Don’t pay fines and late fees. Automate everything you can.

Take the small decisions out of your daily to-do, just use basic technology to help you out. Credit card payments, phone bills and mutual fund investments — automate all of them. There are banks / FIs wanting to reward you for doing so.

Consider paying everything through your credit card and then paying for your card — all on automatic — this helps protect your payments in a dispute and gives you loyalty points as well.

4. CREDIT CARD — Use it, But Pay it Off.

Never ever roll over debt from the card — it is the highest rate of interest and just not worth it. Ex. most HDFC cards charge 41.88% annual interest and the higher end ones charge 23.88% annual interest. 

Credit cards are very good for collecting loyalty points, discounts etc. — do use the points, if for nothing else, just buy gift cards and use it for shopping, before expiry.

But PAY OFF the credit card bill every month IN FULL — If you pay off 90% of the bill they will still charge interest on 100% of the billed amount!

5. Figure your wants and needs.

DON’T buy stuff you don’t really need — ex. that lovely wine decanter (unless you plan and buy it in a sale of course). In your early financial years hold back and accumulate wealth. Don’t mistake this rule for living like an ascetic. When it comes to devices that are integral to life — mobile, laptop, washing machine, fridge, internet connection etc. I believe in paying money for good quality when it will make a difference to my daily living. Ex. I would spend a decent amount of money on a good quality mobile phone. Then I would use it for a few years before changing it.

6. Invest in financial know-how.

Spend at least a couple of hours a week, make the effort, to learn and understand how to manage your personal finance. Learn about investments and then slowly dip your toes. Don’t Gamble with your hard-earned money. Do not go and buy stocks if you don’t know anything about the stock market. Never buy stocks on tips and expert opinions, especially not the ones you see on TV or read in print. Be wary of putting your hard-earned money anywhere that promises high returns. Do your own calculations on returns for schemes sold by banks. Be aware, everyone has targets to meet, very unlikely that one of them is to make you rich.

7. Spend money on things that matter.

Figure out what are the most important things in life for you and spend money on those things. I would prioritise experience over material stuff — ex. holiday with the family. But plan and take advantage of offers, points etc. to get the most bang for your buck.

8. Insure yourself.

Every earning member of the family needs term insurance. The family needs medical insurance, over and above whatever your employer provides. Don’t confuse insurance with investments. They are different. Buy insurance!

9. Invest regularly and wisely

Try to find money to invest, see if you can invest s small sum via SIP. Any bonus you get should be set aside for long term investment — not for short term disproportionate spending. Gratification should be from your regular income. Plan and deploy your bonus as soon as it hits. There is no benefit in letting it sit in your savings account.

10. And finally, setup your nominees!

In the worst case, you need to make things easier for your spouse and kids (or parents). You need to setup your nominees in all your bank accounts and financial investments. While you are at it, write a will, a simple word doc with your signature and two witnesses works. These two actions will ensure a lot of comfort for your loved ones.

Here is a bonus, whenever you can, go support a charity — you can give time or money, whatever works for your life situation. I do this by sponsoring food for those who feed stray animals. I have automated this (thanks to Amazon) and it gives me a small streak of happiness every time someone sends me photos of them feeding the strays. Pay it forward, happiness is more valuable than anything else.

Of course, there are several other things you could be doing, this is just a start. You can also read about the very basics and how it started for me.