Financial Dos & Don'ts

Most of us learn about personal finance through trial and error. The mistakes we make urge us not to repeat them and provide some insights as to what works for our lifestyles and what doesn’t. While it’s true that there is a wide array of personal finance information freely available to us on the internet, it’s difficult to find advice that is applicable for our lives, be it country, lifestyle or income. Finding out what works best for our lives takes time.

That being said, there are some basic financial dos and don’ts that could never go wrong, no matter what your personal finance philosophy might be.

Financial Dos and Donts

DO track your expenses

Tracking your expenses down to the last rupee should be done from your first paycheck onwards. Regardless of whether you’re more focused on savings or more into spending and investments, tracking your expenses allows you to know where your money is going and, most importantly, if you’re losing money unnecessarily either through unconscious expenses or even fraudulent bank charges.

There are many ways you can easily track your expenses:

Mobile Apps

Nowadays, there are countless personal finance mobile apps that not only allow you to track your finances but also automatically categorise your expenses. Some mobile apps even have features to remind you to enter your finances daily and connectivity with your bank account.

Write It Down

The traditional method of keeping your accounts in a ledger will never go out of style. Once you make the act of writing down your daily or weekly expenses a ritual of sorts, you will never forget to keep track.

DO have a long term financial goal

While you don’t need to have the rest of your life planned out in your early twenties itself, make sure that your personal finance philosophy does not hinder your overall life goals. If your end-goal is to become exceedingly wealthy, you need to know the ins and outs of smart investments. If you are someone who prioritizes safety and security, perhaps savings and various fixed assets should be the keystone of your finances. Take baby steps towards reaching that goal from as early an age as possible.

DO think about your credit score

A lot of people are determined to go through life debt-free. Vowing never to borrow money, they avoid taking credit cards or any kind of loan, choosing to rely on their savings for larger expenses like weddings, education etc.. However, buying your first home or vehicle without some financial assistance is impractical in this day and age. People who have never considered their credit record prior to their first major borrowal might find themselves at a great disadvantage in terms of longer processing periods, smaller loan values and even run the risk of their loan application being rejected. Owning a credit card with a high limit (which you don’t even need to use) will help you apply for larger loan values should the time come when you need it.

DON’T pay your monthly credit bill partially

There is absolutely nothing wrong with relying on a credit card to better manage your monthly finances. Not only can you break down large purchases into more manageable monthly instalments (possibly even interest-free), but you can even save money through cashback schemes and credit card offers. However, you should never give into the temptation of simply paying the minimum value on your credit card bill. A monthly credit card bill of Rs. 13,000 might have a very “reasonable” minimum payment of just Rs. 300 to entice customers into simply paying off the minimum amount. If you carry forward the balance (on which a huge interest will be charged) you are walking right into a debt trap where your payable amount will continue to grow exponentially until you have little to no hope of ever paying it off.

DON’T live life on borrowed money

With the number of credit facilities that are readily offered to customers these days, it is extremely tempting to upgrade your standard of living. Be it your bank overdraft, credit card, payday loans from or a quick spot from a friend, relying on borrowed money for non-essential items is a slippery slope indeed. If you are constantly borrowing money, using your salary to settle debts and borrowing again to manage your monthly expenses, urgently look for ways to break out of this cycle and increase your income.

DON’T take on debt responsibility

Be mindful about your debt

One lesson that people learn only when it’s too late is to never agree to be a guarantor to other people’s personal loans. While it might seem simple enough to do a favour for your well-off best friend with the assurance that they will nerve default on their personal loans, unless you are willing and able to undertake the responsibility of paying off their debts, never agree. In any situation where the loan-taker is unable to settle the debt, you will need to do so. If the loan-taker suddenly goes bankrupt, dies or simply defaults, your entire life will get turned upside down. As a rule of thumb, it is best to simply say no to becoming a guarantor for someone else’s personal loans.