The Hindu Business Line : Tighten your purse strings

If anything, the financial whirlwind that has taken most global economies and markets by surprise has taught us all that making money is no easy game. But what would be more challenging from now would be to protect and build on that booty. Yes, you guessed it, there is a bit of financial sermon coming your way.

But, then, with business dailies filled up with articles on layoffs, job losses, income losses, forex losses – basically all kinds of ’losses’, don’t times such as these call for some financial prudence? Well we think they do. So, here goes our “Five Commandments of Financial Prudence”, written just for you.

Thou shalt create an income cushion

In a bid to remove excess flab, companies the world over are resorting to job cuts.

While there is no saying if it is the right thing to do, (that’s another story), you will need to be prepared for the day when you could get that much-dreaded call from your boss.

Sorry, it is not our intention to scare you; but it is imperative that you be prepared for the eventful day even if life seems rosy now. After all, under the current circumstances, people may lose their jobs due to circumstances totally beyond their control.

Create at least a six-month income cushion that will offer you a soft landing in case you lose your job. And remember to keep that money safe and easily accessible – that is, liquid.

Do not lock that money in a fixed instrument (with a lock-in period) or put it in stock markets, for it may well prove to be your own ‘lender of last resort’.

Thou shalt reduce and control thy expenses

Waited long to buy that dream car, dream bike or dream something of yours? Well, prolong that wait. Think of yourself as the Chief Financial Officer of your life.

For, with it will come the realisation that this is no time to give in to your urges to splurge. Big-ticket expenses that can be postponed or better still, avoided are best postponed or avoided.

Remember cash is king in uncertain times (read as now) and so when you decide to put it to use, it better be on something that is worth its value. In short, exercise utmost control over ‘unwanted’ expenses.

Thou shalt not use thine credit card with nonchalance

Say No to plastic money whenever you can. And if that’s not possible, at least use it prudently.

Remember, the world is grappling with a ‘credit’ crunch and the fact that you are still able to swipe your cards speaks quite favourably of your credit worthiness.

At all cost, try to maintain that. Do not go overboard on the use of plastic money and pay up your credit bills on time; paying late fee on credit card bills should not even figure in your daily ‘things to do’ list.

If you are one of those who is tempted to use credit card at every shopping corner, it is best to leave your card at home occasionally, especially when you are in the mood for excessive indulgence. This way you can enjoy some healthy window shopping experience without delving too much into your wallet.

Thou shalt not take any avoidable loans

Even if your agent friend calls you in the middle of the night and entices you with an attractive loan deal, don’t give in. Not only are interest rates high now, they are touted to cool considerably in the foreseeable future. So, don’t make avoidable financial commitments now. The same logic holds true even with home loans. Unless in dire need (in which case you can consider a floating rate loan), do not commit yourself to huge expenditures.

If you have been following the previous three suggestions, chances are that you may not be in a tight liquidity situation that calls for emergency loans.

Thou shalt respect thine hard earned money

If the last couple of years of having ‘big fat salary packages and bonuses’ made you scorn at the ‘drudgery’ your parents undertook during your childhood, wake up — the tide may be turning.

With a majority of India Inc’s workforce not under any pension scheme, it is about time you at least begin planning for retirement.

On that note, make sure you have sufficient insurance coverage, including medical. Home-loan borrowers can also consider buying insurance for securing some of their loan payments. Remember, money always comes and goes, if we are allowed some philosophy here – but the trick is to hoard up more of what comes in, so that lesser of what comes in will be allowed to go out.

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