How to stick to New Year’s Resolutions !!

Last year I have written an article on Resolution for 2018: Be Healthy & Wealthy.  Similarly many of us make resolutions every year, but as the time goes by motivation to stick with those resolutions weakens and after a couple of months we are back to our old life style.

So what should we do to keep them actually working?

Generally we make resolutions in terms of what we shall not do and end up thinking more about it and reinforcing the earlier habitual decision. On the other side we decide to do certain things in a particular way and make it so rigid that slipping up is the final outcome leading to disappointment.

We human’s understand the reward and punishment/ pain easily. We want rewards for our actions and dislikes the pain. Hence if a new actions do not result in pleasure or positive outcomes, we lose the interest.

So how should we make resolutions which are easy to implement and keep us motivated to continue with it? Let us take few example from the world of Personal Finance.

1. Can’t Control your Spending Spree, Let’s Try this!

To Control Spending we make a resolution to limit our use of credit card or EMIs for purchases. But it does not work as we try to restrict the things in our old habit. So let us change this by making a resolution to use Debit card instead of Credit card. This way we are creating new habit where we would be spending money which we already have in our Bank Account and as we spend our bank balance goes down, which means we see the immediate outcome of our expenses and have a limit only up to the money in our bank account. This could be more effective way to control our expenses.

2. Want to Save but don’t left with money at the end of the Month, Try this!

We all know saving is very important so as to have money for future requirements, and most of us want to save but by the end of the month when we check our bank account we find nothing is left to save. So how to change this habit. Let us change this habit by saving on the day we get our salary rather than waiting for last day of the month. Systematic Investment Plans or better known as SIPs are the best way wherein we can decide the date and amount to invest in and the money gets debited directly form the account. We can also target our savings to a specific goals and have a picture on mind that by this money we will get this particular thing, this will further motivate us to save more.

3. Want to upgrade with new things on EMIs, Try this!

We get attracted to new things in the market. New Smart TVs, Mobiles, New Cars and so on. Even though we may have brought it just last year we want to buy new with the new features. Companies market them in such a way that we just get carried away with their new features. Let’s us check whether we are using all the features of our current mobile rather than just running behind to buy a new one. Do we actually need that item with new feature? Here what is more important is to focus on what we already have and are we enjoying/utilising it fully so as to redirect our attention on using things effectively rather than acquiring them. We need to take time and enjoy the things which we already have rather than focussing on what we don’t have by this we may be able to redirect thinking on more positive way.

Saving is a decision where we deny our self the pleasures of spending. The money we save is set aside for an unknown future which can be used to enjoy something in the present. Our human brain cannot trade off the immediate joy for a distant good very easily. Many of us make a virtue of living for the present, to guise our inability to save. Investing is a long term activity that does not show up gains too soon to keep us motivated hence we need to make our savings more attractive and target oriented so that we have the reasons to save and not spend.  

Should you invest Yourself or take an Expert’s help

In today’s world technology has made investing easy. Lot of information is available; in fact there is overload of information and also various online platforms provides smooth execution of investments. But should we invest on our own just because it is so simple?  It is a matter of investing your hard earned money to make it grow hence it would be wise to know that whether we can actually handle it properly. 

Let us understand the basic requirements which we are required for our own investing:

1. Do we know about various investment options and their pros & cons?

2. Can we analyse various investment options and their suitability for our own specific requirements?

3. Can we identify our various financial goals and the priorities and calculate the money required for fulfilling them?

4.  Can we link our financial goals with specific investment instruments based on time, risk and return perspective?

5. Do we have the courage and conviction to select the right investment options and stick with it during ups & downs in the financial markets?

6. Can we plan for emergencies and unforeseen events?

It is not the knowledge but the emotions which are difficult to control by most of the investors. There are lot of studies which shows that investors return is generally mower then the market returns as most of them enter/exit at wrong time. This is where financial advisers can help–providing dispassionate suggestions.

It is not necessary that everyone needs an advisor, those who have just started earnings and have small savings can do themselves by simple investments , however who have different goals and limitations in cash flow will be better off to take an experts advise to achieve their goals easily.

Are you In Debt Trap: How to come out of it !

While discussing the investments and financial planning with a young couple I found that despite having good salary he was not comfortable to put aside a decent amount for his retirement planning. When we discussed more I found that he has got lot of EMIs running for CAR, TV, and IPhone etc. which were eating a substaintial part of his monthly cash flow.

It is not uncommon to find these kind of young couples, borrowing anything and everything to meet their needs or actually the wants. Now EMI on credit cards makes it further easy to buy the things and paying in future. Many people live in pay cheque to pay cheque and in complete denial of the burden they carry on. Over dues on Credit card are killer, there not only the due amount increase at usurious rates of interest, but the repayment gets tougher as the loan gets bigger. In that situation the person goes to more discreet lenders like family and friends, informal lenders, etc, only to find that they have run out of friends. Informal lenders not only seek higher interest rates but sometimes use questionable means for recovery. So, what can a habitual borrower do to come out of this DEBT TRAP and move forward to the path of saving for long-term goals?

1. Don’t Borrow to Repay the Old Loan

The starting of a debt trap is when new loans are taken to repay older loans. Therefore no further loans should be taken to repay what has already been borrowed. The repayment of a loan should be made out of income not from new borrowing. The person should find new ways to increase his income, for example he can do some part time weekend job to generate extra income or if spouse is not working she can take some job to improve household income etc.  

2. Control the Expenses

Once we realise that we are paying more in EMIs then the normal monthly expenses we should reduce our expenses to fit in the remaining cash flows. To start with we should curb the discretionary expenses, weekend outings and other items which are not necessary till we come out of this trap. We should stop using credit card if dues are not paid as it will carry very high interest charges on the fresh purchases. We need a firm determination and proper budget to come out of this trap as there are several instances of psychological damage like depression and suicidal tendencies which come up due to it.

3. Negotiate and Restructure

We can negotiate and restructure the existing loans which can reduce our burden and fit in to the cash flows. Banks/Credit Card Companies do offer debt restructuring and advice for appropriate payment plan to help chronic borrowers. There are also external professional agencies who can also provide assistance for the debt restructuring. If you are not able to find out the right way it is always better to seek professional help to see what is due, and how it can be reworked. There are some easy way to convert costly loans like Credit card dues into personal loans; penalties can be negotiated for waiver; repayment schedules can be structured in line with capability of the borrower.

3. Sell the Assets to get out of the Mess

Some time we get so much emotionally attached to the things we poses that we don’t want to sell them even though by that we can reduce a significant burden and get a great relief. We should understand the reality and make our existing assets work, like an empty property can be put on rent, we can take mortgage gold/jewellery to raise money or can use our bank/PF balance to reduce the debt burden.  We feel a social stigma about selling assets or mortgaging our ancestral assets but taking some tough decision can be of great help as there may be short term costs but have long-term benefits.

There is a famous Bollywood movie “EMI: LIYA HAI TO CHUKANA PADEGA”, this is the fact and we just cannot escape from it.  We should also understand the fact that loan can be reduced only by repayment not by taking other loan. We will be getting our self in deeper mess if we are borrowing more to pay the older loans. The solutions lies on to figure out how to restructure and reduce the debt by existing cash flows in a disciplined manner. It is always better to take professional guidance before it is too late.