New Delhi: Running out of money by month-end is a common phenomenon especially if your salary is low. In order to get out of the financial crisis faced during the end of the month, you need to have a budget. A fixed budget will help you reconcile your income with expenses. Not having a budget will let your spends get out of hands, leaving little or no money at month-end.
Other than having a budget, differentiating between mandatory and voluntary spends is also essential to live in a small budget, say, financial planners. Often, it is seen that young earners indulge in impulsive buying and spend their money before paying bills, premiums, EMIs or SIPs and rely on credit cards for essential expenses, which lands them in debt traps.
To get rid of this problem, you need to prepare a budget, differentiating essential spends like paying bills, EMIs, flooding expenses, house rent from discretionary ones like dining out, watching a movie etc. Once you provide for all essential expenses, you can know how much you are left with for discretionary expenses. This will help you bring discipline in your spending habit.
Worth mentioning here is that you need to put 20-30% of your income every month in an emergency fund, which you should not use other than in an emergency. Financial planners say you need to have an emergency corpus of at least six months of salary so that you can face situations like job loss, medical treatment of family members without any additional borrowing.
Last but not the lease is aligning your expenses with your income. For example, if your salary does not permit you to have a luxury car, you should not go for the same, by taking a big car loan. If you spend more than your income allows in order to maintain a lifestyle that matches your friends, soon you will neither have the money, nor any friends.
According to a report in the Economic Times, one should not do the following things in order to avoid situations like running out of money by month-end.
1. Don’t use credit card to fund expenses which your income does not permit. If you can’t pay the full bill every month, this will land you in a debt trap.
2. Don’t spend in advance expecting a pay hike in the near-term. “If discretionary spends are the reason you run out of money, a higher salary will just mean more disposable income to spend. You will still run out of money,” the business daily said.
3. Don’t dip into emergency fund for discretionary expenses. Doing this will leave you without fund for real contingencies.
4. Don’t take risk to make extra money. If you gamble, buy lottery or do intraday share trading to make a quick buck, you are simply trying to ward off a smaller evil with a bigger evil.
5. Don’t miss EMIs, insurance premium, SIP to do impulsive spends