Dos and donts of personal finance – Part 3

Surprisingly, some of the fundamental dos and don’ts in personal finance are absolutely never new. Those were the principles your grand fathers and great grand fathers were practicing in their ages. The only difference was there was not so much of consumerism those days; there were not so many of truly-unnecessary-but-highly-e nsnaring products and gadgets in the market and the curse of the credit card culture was non-existent.

In this article, I am going to cover only those age-old fundamentals of sound personal finance practices which may sound bland and boring to the present day culture of instant gratification through un-owned money. But only experience will tell you that olden wisdom is always aimed at giving long lasting peace than enjoying short-spanned thrills in life.

(1) Live within your means:

It simply means: let your regular expenses be well within your regular income. It amounts to saying that let your desires, needs and ambitions be restricted in proportion to your income; let your lifestyle be in tune with your current earnings and not in comparison with your neighbor, colleague or a peer.

(2) Save a percentage of your income:

There is a saying: Let your first expenditure be a saving. While we go about happily with undisciplined spending, we normally find it difficult to do disciplined saving. Saving should become a commitment. The culture of saving should be nurtured in our blood stream.

How much to save? A general guideline is 10% of your income, at the least; The more, the better.

(3) Never enjoy luxury on borrowed money:

The toughest rule is never to borrow money, which perhaps might not have been practical for the vast majority even in those days. The relaxed rule is to borrow money only for buying long term assets (like a house).

A further relaxed rule is to borrow money for capital intensive luxuries (like buying a car). But the age old wisdom restricts borrowing to cover only that much of money which you can’t pump in from your savings. The idea is that your debts should be minimal and well within your capacity to repay without much of ado. It goes without saying that the choice and model of the vehicle you buy on loans should be what you can afford repay comfortably and not what is prestigious to own.

(4) Invest on assets that appreciate faster or that have higher security value:

An investment on a piece of land has more scope of appreciation and has higher security value than company shares. Investment