The Indian consumer has never had it so good -- what with easy consumer loans, credit cards and an ever-expanding choice of branded goods and retail outlets.
The flip side is that it has never been easier to have your spending spiral out of control and your finances in a mess. Here are five tips to get your finances in good shape.
1. Record your spending habits
It's a simple enough strategy, but it can make a huge difference when it comes to getting your spending under control. The very act of writing down your spending will make you more aware of your habits.
If you wish to curtail your spending later, it's much easier if you have a written record to scrutinise. You should make it a point to examine your spending every few months and to cut back on items that aren't really worth the money.
You can record your spending using pen and paper, or you might prefer to use an application like Excel which provides you with several useful analytical tools. Today, there are even mobile applets which will allow you to keep track of your spending on your cell phone.
2. Do your research
When it comes to big-ticket items like consumer electronics, cars and so on, it's very important to carefully research the product before making a purchase. This has gotten a lot easier with a number of online resources which provide product reviews by professionals and ordinary users as well as price information.
For every product category, you should try to find what reviewers call the 'sweet spot' -- this is where you get the maximum features for the money. This is generally not the most expensive or cheapest product, but one that is somewhere in the middle. Often when, say, a phone company introduces a new top-end product, the earlier top product will become cheaper and very attractive in terms of value. You should be alert to such opportunities.
3. Be flexible and patient
Very often, you can save quite a lot of money by waiting a little or by buying a different brand to your usual one. For example, if you go to a supermarket there will be a different set of brands on sale every week in each category. If you buy the items that are on sale, instead of sticking to your regular brand, you can save quite a bit of money.
Similarly, if you are planning to buy consumer electronics, you might want to wait for a sale. Make sure you keep track of the 'sale' ads in the papers and, before long, you may get a great deal on the product that you are interested in. Likewise, if you are prepared to wait, then you can also get attractive deals on books at one of the many book fairs that are held every year.
4. Look at the big picture
Quite often, we end up overspending on small things like coffee and cigarettes, which don't seem expensive but add up to a considerable amount over a long period.
That money could be better spent on something truly important like a retirement fund or something that would give us genuine satisfaction like a car or a trip abroad.
As an exercise, examine one of your habits and see how much money you spend on it over the long run. For instance, if you are a smoker, add the money you spend on cigarettes every month. Then, use a savings calculator to see how much it will add up to by the time you retire. You might be surprised at how large the amount is.
5. Save and invest every month
Saving and investing in a disciplined and regular manner is a very important aspect of managing your finances properly. Start investing as early as possible and get the power of compound interest to build yourself an adequate retirement fund.
Based on your salary and expenses, figure out a savings target. Make it a point to save that target amount at the beginning of every month. The best investment for the long run is probably mutual funds; you should invest in several funds covering the main sectors of the economy and the different types of companies (large-cap, mid-cap, etc).
