Being careless with money is often associated with bad financial habits. If you are not aware of what these bad habits are, here is a list that could well serve as a caution.
Do you find that you are telling yourself to break out of a bad habit every once in a while? Those little quirks you develop sometimes that can become life crutches if you don't quash them out in time? Well, the same holds true for your finances. If you do not recognise bad financial habits on time, you run the risk of losing a lot of money and damaging your CIBIL score in the process.
You work hard to earn a living. But if you are not careful with your money, you may end up losing a chunk of it and putting your future in jeopardy. What's more, you could end up with serious blotches on your CIBIL report and have a bad CIBIL score thereby. A bad CIBIL score means you will not have access to credit when you require it.
1. Not budgeting your spend
There is no harm in the 'work hard and play hard' maxim, but often when one is young and carefree s/he tends to live beyond her/his means. A simple way to control your expenses is to start budgeting your spend. There are some mandatory payouts you need to make in a month, but what about your other expenses? Is there a scope of cutting you spend there?
When you make a budget and mark out categories there, you will find there are places that you are overspending. More often than not it is in categories such as entertainment or shopping. Tracking your expenses over time will show you the problem areas after which you should make a few conscious decisions to cut down on unnecessary expenses. Over time this will also lead you to save more and spend less.
2. Going overboard with the credit card
As easy as it is to use your credit card, it may lead you into a debt trap that is not easy to get out of. Many people give into the temptation of buying things they can't afford by using their credit cards. As a result they are unable to make repayments on time. Credit cards are the most expensive form of debt as the annual percentage rate of interest on them is as high as 36-40 per cent.
Credit cards should therefore never be used to fund your desires. On the other hand, if credit cards are used judiciously each month, and repaying the outstanding amount in full, it may lead to a stellar CIBIL score.
3. Dipping into emergency funds
Financial planning wisdom suggests that every person should have an emergency fund that should see him through at least three to six months. If you have created an emergency fund and dipping into it now and then, it will be of no use to you when an emergency really crops up. Therefore make it a conscious habit to put in a bit of your earnings away in an emergency fund each month.
If you get a bonus or a monetary gift sometime, make sure a large share of it is directed towards this emergency fund. That is called being prepared for a rainy day!
4. Buying things to make yourself happy
There are a lot of businesses out there that are making money because you like to binge. This is not to deride the fact that India is called a 'consumption' led economy, but give it a careful thought. Do you buy things to uplift your mood, or just because you are bored?
If that is so, you are perhaps consuming mindlessly to make yourself content, and sorry to sound philosophical, but material things cannot buy you happiness. Do buy yourself a nice thing or two once in a while, but make it a habit to save more than you spend?
As for happiness, it can be found in simple things such as taking a walk in the fresh air or spending time with your loved ones!
5. Waking up late
As bizarre as it sounds, waking up late can also have a negative impact on your finances. Imagine the number of times you have switched off that alarm button and gone back to bed and before you know it, there's barely enough time to get to work!
Now rewind and think what would have happened if you had not hit the snooze button on your alarm. In that extra hour that you would have gotten maybe you could exercise to give your day a jump start, do some long pending reading or get started on your plans to learn a new skill.
All these activities can, directly or indirectly, lead to a higher income. So instead of getting that coveted hour of sleep, fill in your morning hours with these activities and guess what you will feel more productive than ever before. And as they say, 'Early to bed and early to rise, makes a man healthy, wealthy and wise!'
Bad habits are not easy to get rid off, but with a bit of hard work and conscious efforts you can indeed get rid of them, especially when they impact your finances. If you have empathised with one or more of the above mentioned points it's time for you to make those efforts now! It may be painful for you to make these changes in the immediate short term, but inculcating good financial habits over time will lead to you saving more money over time as well as maintain a healthy CIBIL score.
The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.
Illustration: Uttam Ghosh/Rediff.com