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The middle class has discretionary income that can be used to buy motorcycles, refrigerators; washing machines, and go on vacations. They can also go to movies and indulge in entertainment when they are confident they can weather an economic shock. Many of them have EMIs to be paid, costly child education, and spending in order to keep up with their peers. If they don’t plan well they may have empty pockets thus living paycheck to paycheck, which may result in financial as well as mental stress. The middle class fights a war all life to match needs with resources.
Money spent without any financial planning may result in losing peace of mind due to overspending. This can be overcome with planning when they are cautious with the money spent. Here are some of the financial tips for the middle class-
1) Purchase of car-
If you are planning to buy a car, try to purchase it without a loan or the least EMI. The decision to purchase it can be postponed for a few months so that maximum cash can be paid out and EMI can be kept to a minimum. Larger EMIs eat into your monthly budget.
Manufacturers and dealers give discounts during the festival season so it is a good idea to buy during the festivals. If you have a large family to support it would be good to buy an entry-level car than an expensive car. One thing you have to remember is that the car is a depreciating asset and its value would be much less down the years. On top of that, you have to see the mileage and be able to afford all the repairs. Don’t go and buy just because your neighbor has bought a new car. If you can’t afford it and have no regular use for it traveling by Uber and Ola would be a good choice.
2) Marriage –
A wedding is a once-in-a-lifetime event and people want to spend lavishly on the wedding of their children. If you spend more than you can afford and try to meet the expectations of society and be one up on your friends and relatives then you will land up in a debt.
Even at the most expensive weddings people can always find fault and criticize one thing or the other. It is worth the effort to set a reasonable budget and not get into any debt for the wedding. Keep the wedding short, small and sweet; the money saved can be utilized for buying an FD in your child’s name, gold, investing in shares, or even making the down payment for the house.
3) Make your child financially literate-
Sending your children to school does not make them wise in financial aspects. They should know about money aspects from a young age because ultimately they wish to have a luxurious standard of living. Financial literacy means not only spending money wisely but also saving and investing it.
Money is important for our day-to-day life and it is necessary to talk to kids about how hard it is to earn money and manage expenses. While carrying out shopping you can teach them the difference between wants and needs. Make them understand what debit and credit cards are. Teach them that it is important to save first and open a bank saving account with them jointly. Tell them about salary, financial aspects, and savings and they will begin to use the money judiciously when they start earning.
4) Never compete with your neighbor on expenses-
Our neighbor is a person who lives in a house or apartment next door. We see them every day and these are the persons who are immediately available to share our joys and sorrows. But you may become jealous of them which may arise due to an inferiority complex. Contentment is not there when we compare ourselves with others.
There may be many reasons why we become jealous. These could be like when they can afford to buy a new car model, have a well-maintained house with luxury items, have children studying abroad, have no money problems and no debt, have regular and lavish holidays, remodeling of the house done on regular basis. There are many places where our neighbors could be better than us financially and if we try to copy them then it could leave us in a financial mess with lots of debt.
5) Plan your retirement-
Education is very expensive nowadays and private schools are quite costly. Higher education is still costlier and it is the biggest priority of Indian parents. There are other expenses like going out on vacations. Many children marry late nowadays and the parents fund these lavish weddings out of their retirement funds. They renovate houses for additional family members and even give money to their children for the purchase of cars.
With the improvement in the healthcare system, the life expectancy of people has increased. The parents focus so much on their children that they often don’t invest in pension funds. This leads them to be dependent on their children in their old age. They think that if they have spent so much on their children they deserve some support in their retirement age. But when the children don’t support them it leads them to a bad financial status. So they must always plan for a secure retirement.
6) Pay taxes on time–
People should always pay taxes on time, if not the government will impose penalties for evading taxes. When applying for vehicle and home loans the bank can request a copy of your income tax returns. Short-term and long-term capital losses can be carried forward and can be adjusted against capital gains in the subsequent years. This can only be availed when the income tax returns have been filed. For self-employed individuals like freelancers and consultants the income tax receipts can act as proof of income and help in financial transactions.
7) Find additional sources of income-
Middle-class people don’t always have much money unless they have invested wisely. It is their responsibility that doesn’t allow them to have much money at month end for investment. But what they can do is find additional sources of income to supplement their salary. With more sources of income, they have a better chance of becoming rich. Things they can do to get additional income besides the salary are an online business, carrying on online tuition in their house, renting property, investing, freelancing online, consulting in a field where they have the knowledge, blogging, and virtual bookkeeping. This way they can earn extra money and invest to increase their wealth.
8) Never carry out impulse purchasing-
You may visit a mall and like the things on display and carry out impulse purchases even though you may have plenty of clothes in your wardrobe or your house may be overflowing with appliances and utensils. There may be an online discount available and again you may be tempted to buy the item online because it is cheap. Stop for a moment and think if these items are really required. Before you go shopping in a mall make a list of items that are really needed and never deviate much from the list. If you remain within the budget you can save plenty of money during the month.
9) Read personal finance books-
When you are financially educated you can manage, save and invest money for yourself as well as your family. The best way to gain financial knowledge is to read a couple of books. There are many books available that teach you about personal finances, budgeting, stock markets, investments, insurance, retirement planning, and estate planning. These books can educate you on utilizing your finances wisely and highlight the dangers of wasting wealth that can damage the future.
10) Buy life and health insurance-
Life insurance is of utmost importance as an emergency situation may arise at any time. It is therefore wise to have adequate insurance coverage in the event of the unfortunate demise of the breadwinner of the family. The family will not have to go around knocking for money and can have the same standard of living with the help of insurance amount provided by the company.
Similarly, healthcare costs are also rising with the increasing inflation. Due to unforeseen medical emergencies that may arise, it is a must to have health insurance coverage for you and your family. A medical emergency can prove to be costly and can derail your finances for a few years.
These are some of the financial tips for the middle class. If a person is not able to manage their finances well there is a lack of stability in their life. These habits can be practiced over a period of time. Financial planning is all about securing your future and having the money to lead a comfortable life without any stress.
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