The trigger for this piece happened as I was at Andheri CL center in Mumbai recently and saw this poster about “ants”. It said something like this – “Ants never give up on their goals, you obstruct them and they take a detour. However, they continue eventually in the direction that they needed to move, though in normal times, they move in a “herd format” – one behind the other”.
The past year has been difficult for most of us. The process of surviving through difficult times is a challenge that one cherishes only when it is over. We have all been moving in a “herd format” – everyone bullish about growth, everything around us growing……till the world around us came crashing down – layoffs, salary cuts, no increments, no bonus. Some people gave up, others frustrated, depressed; only a few kept moving on towards the goal, just like the ants.
A number of people came up to me during this period and talked about their difficult financial condition and the associated mental stress of self and family. Fortunately, I have been through this personally, quite early in my professional life and shared it with most of them. I don’t know if that really helped these people, but surely it brought some comfort in the sense that “I am not alone”.
For most of us, we commit to expenses even before we earn it. We, of course, also ‘leverage’ our future earnings in the form of “loans and credit cards”. It is surely a smart way of stretching the money that you earn, as long as you can manage it well. A lot of people follow the “herd format” here as well, without realizing the nitty-gritty of financial management. I am not the best person to give tips for financial management, but learnt some basic tips from my father, as I grow up. May be I can share some of these with you:
Commit monthly expenses of not more than 60% of your regular earnings (the cash that you get in hand).
Put away at least 25% of your earnings every month as savings and investments (remember car, mobiles, laptops and other gadgets are not investments but expenses).
The balance 15% is the discretionary expenses, which you use to enjoy life, have fun.
Take loans only for something like land, house. Credit card expenses need to be paid up in full every month.
The above percentages are not sacrosanct – however, it has held me in good financial health so far, only after the “disaster” that happened early in my work life (while I had dismissed this as another “gyan” from dad). One may have some liquidity crunch, once in a while. But, you will surely be able to hold yourself against unforeseen “disasters”. In my mathematical mind, I can observe that you build-up a reserve of 5/6-months of committed expense, if you have saved for the full year.
As we enter another growth phase, I am sure many of you will be cautious and take necessary steps such that you are better prepared should it happen some time in future – “should it happen”? ………”It will happen”. Obviously, it makes sense to be prepared.
The mandatory savings in the form of PF and tax savings are all on their way out as the new tax regime comes into force by 2011. So whatever mandatory savings were being made, can also go, should you decide to live life here and now. Even, life insurance, medical insurance, need to planned as soon as you start earning. Enjoy life and ensure that you keep enjoying life.
The past year has been difficult for most of us. The process of surviving through difficult times is a challenge that one cherishes only when it is over. We have all been moving in a “herd format” – everyone bullish about growth, everything around us growing……till the world around us came crashing down – layoffs, salary cuts, no increments, no bonus. Some people gave up, others frustrated, depressed; only a few kept moving on towards the goal, just like the ants.
A number of people came up to me during this period and talked about their difficult financial condition and the associated mental stress of self and family. Fortunately, I have been through this personally, quite early in my professional life and shared it with most of them. I don’t know if that really helped these people, but surely it brought some comfort in the sense that “I am not alone”.
For most of us, we commit to expenses even before we earn it. We, of course, also ‘leverage’ our future earnings in the form of “loans and credit cards”. It is surely a smart way of stretching the money that you earn, as long as you can manage it well. A lot of people follow the “herd format” here as well, without realizing the nitty-gritty of financial management. I am not the best person to give tips for financial management, but learnt some basic tips from my father, as I grow up. May be I can share some of these with you:
Commit monthly expenses of not more than 60% of your regular earnings (the cash that you get in hand).
Put away at least 25% of your earnings every month as savings and investments (remember car, mobiles, laptops and other gadgets are not investments but expenses).
The balance 15% is the discretionary expenses, which you use to enjoy life, have fun.
Take loans only for something like land, house. Credit card expenses need to be paid up in full every month.
The above percentages are not sacrosanct – however, it has held me in good financial health so far, only after the “disaster” that happened early in my work life (while I had dismissed this as another “gyan” from dad). One may have some liquidity crunch, once in a while. But, you will surely be able to hold yourself against unforeseen “disasters”. In my mathematical mind, I can observe that you build-up a reserve of 5/6-months of committed expense, if you have saved for the full year.
As we enter another growth phase, I am sure many of you will be cautious and take necessary steps such that you are better prepared should it happen some time in future – “should it happen”? ………”It will happen”. Obviously, it makes sense to be prepared.
The mandatory savings in the form of PF and tax savings are all on their way out as the new tax regime comes into force by 2011. So whatever mandatory savings were being made, can also go, should you decide to live life here and now. Even, life insurance, medical insurance, need to planned as soon as you start earning. Enjoy life and ensure that you keep enjoying life.
Well said, Arindam! Its not sheer coincidence that I read a similar advice from Warren Buffet too...I really liked one of the things about asking your children to "invest" from their pocket money, rather than spending it. That investment could be in a small business or shares (as expected from him).
ReplyDeleteI hope young people will take your advice in planning their finances properly.