One needs to understand that it takes years
to get out of debt. Here's Amar Pandit's advice on how to move towards a
debt-free life In the current scenario, with increase in
the standard of living and the rising costs of necessities, we have seen a
surge in the number of middle class families that are borrowing money to meet
their family's needs.
Further, the younger generation has an
excess cashflow in their initial years of working. Lack of responsibilities
makes it easy for them to have more money than they need. Thus, these 'extra
bucks' are spent to live a luxurious lifestyle that they desire.
As they advance in their career, family
responsibilities increase along with the salary and thus, they are in a
troublesome situation of being entitled to a standard of living that they
cannot afford. In such a situation, credit cards and cover loans are highly
rated as saviours.
Plus, they also offer you loyalty points
for your next purchase. Cherry on a cake, isn't it?
The dream of owning a home, having a
fulfilling career, settling down, maintaining a life style, etc., all will lead
to growing debt and you will be stuck in the vicious debt cycle before you even
start to realise it. But is this an ideal situation to be in?
Definitely not!
In the chase of always 'wanting more',
people tend to miss out on the rate at which they're piling up the debts. Any
income can be spent but when contingencies arise, managing day-to-day expenses
along with debt repayment becomes a huge issue. Does this mean you shouldn't borrow at all?
There are good arguments about debt and
leveraging being beneficial, like a mortgage, since it's a smart investment,
considering the lower interest rates.
Debt, if used well, can create
income-generating assets to boost your income and improve the productivity;
otherwise it is wasted only on things that won't really add value.
One needs to understand that it takes years
to get out of debt. Following are the key things to remember which will lead
your way towards a debt free life...
1. Understanding your debt
Understand if your debt is consumer debt
(credit card bills, personal loans) or secured debt (car or home loans).
2. Plan your finances
List down the mandatory expenses which occur
to keep your routine going (Grocery, Electricity-Water-Telephone Bill, EMIs,
etc.) and always ensure that you have enough cash in hand to pay for these.
3. Set aside 3-4 months mandatory expenses
This would be beneficial in case of any
emergencies and would help you to avoid adding debt.
4. Set goals
Find the goals that inspire you and you'll
have no problem focusing on the same.After listing down your cash inflows and
outflows, look out for the surplus balances that can be channelised towards
these goals. Find out the investment avenues which would
help to achieve these goals. This would indirectly stop impulsive purchases.
5. Turn your junk into cash
We always tend to make impulse purchases
only to realise later that it was unnecessary. Anything in your house which hasn't been
used for past 6-12 months, chances are slim that you'll use it anytime in
future. So, why not get a rid by selling it off and get yourself some extra
bucks?
6. Control debt
Limit your overall debt payments to a
maximum of around 35 per cent of your gross income. The lower, the better.When it comes to getting rid of debt, the
most important thing is to get started. Assess your situation and consider the
options that will work best for you. If you are struggling with debt, act
quickly and seek help from a Financial Advisor. Amar Pandit, CFA, is an
engineer-turned-financial planner, and founder of HappynessFactory.in, a unique
fintech company.
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