In the past couple of years, I have seen several individuals and families getting financially ruined. Families with little toddlers who could neither understand what was going on nor were they able to control their basic hunger pangs or even understand why they are not able to go to school like other children of their age. In most cases, the unfavorable situation was completely avoidable or the intensity could have been reduced with a little prudence.
Financial ruin, like success, does not happen overnight. It is practically impossible for someone to just wake up one fine morning and find themselves financially ruined. Most people see the signs of impending danger but rather than taking some corrective action they chose to neglect it, perhaps hoping that everything will be fine eventually.
Success and ruin is basically the culmination of several small daily decisions and habits. Most people attract their financial ruin with conscious efforts, perhaps oblivious of the long term effects of their choices. We are all a product of the choices that we make. Good choices lead to good results and bad choices lead to bad results. You cannot make bad choices in terms of your finances and still expect to reap the benefits of financial security just like you cannot expect to pick an apple from an orange tree.
Below is a list of top 10 reasons that we believe contribute to gradual financial degradation. Read through to check if you can identify any habit that is possibly eroding off your family’s future safety, security and happiness.
Technological Upgrades
Most people use their mobile handsets for only two basic things – to make and receive voice calls and send and receive text messages. Think about it, does it really make any difference to you if the newer model that was recently released has a bigger screen or better RAM processor when your existing phone is working just fine. Mobile phone companies constantly fine-tune their older phone models and periodically release new models and then run massive marketing campaigns to persuade customers how their newer model is a “must-have”.
Many people make unimaginable personal sacrifices just to keep up with these technological fads. Such people chase every new phone model release and many retailers even offer 0% EMI plan to lure more customers to buy. Obviously many people opt for these lucrative EMI payment plans and before they have even paid off their existing payment liability the mobile phone company releases a new phone model thus creating a constant loop of buying and paying. Don’t chase those elusive shadows of quasi-perfection, it will not lead you anywhere.
To live a better and happy life, you don’t need to have the latest phone model. You just need to learn to communicate better with your loved ones and with people around you.
Brand consciousness
Many people have this misconception that the costlier product is a sign of brand superiority. Such people often brag about expenses just to convey that they consume only the best.
Just because you are paying more for some product it doesn’t mean that it is a superior product. It could also mean that the product has a lot of middlemen who assisted in delivering the product from its place of production right to your shopping cart, and those people need to be paid. Those supermodels and celebrities you see on the television and on the hoarding at the highways promoting the big brands also need to be paid big amounts. Guess where that money comes? Obviously, by charging the end consumer by making them believe that they are buying something superior just because some celebrity is endorsing it. Neither the middlemen nor the celebrity is adding any value to the product that will enhance your consumption experience yet a significant portion of the money you pay goes into their pocket. Buy products that serve your need, don’t just buy anything because some celebrity is endorsing it.
Buying a car as a status symbol
Your car is not an asset, it is a liability and a liability can never be a status symbol. A few years ago, I had a friend who was very adamant about the idea of buying a car that was way above his income status. Funny thing was that he knew his job was at risk at that time and he had no other source to pay the loan if he was laid off. I tried to talk to him to give up on the idea of buying that car and settle for a well maintained second-hand car until he finds another job. He scoffed at that idea and proceeded to buy the car anyway. I congratulated him on this milestone with an uneasy feeling in my heart.
A couple of months after he purchased that car, he was laid off. Now he had major portion of his loan payment due but had no idea how to pay that amount. Keeping that car parked in the garage also required significant money outflow in terms of the monthly loan payment and driving it was out of the question because that would also require money for fuel. He gradually started defaulting on his credit cards, personal loans, and car loan and began borrowing money from people he knew in order to survive. Like is always the case, his financial ruin did not come unannounced. He just preferred to look the other way.
I personally, do not own a car. I live in Dubai and the city has well-developed modes of public transport. I prefer to use public transport to travel locally. If you need to buy a car, then buy a car that serves your need, do not treat it as an inanimate PR agent.
Grand weddings
Weddings are a special occasion for every family as it marks the start of a new beginning. It is understandable that you may want to make it memorable and not hold back on anything by worrying about your expenses but the question you need to ask yourself is it really worth to base the foundation of your new beginning by subscribing to a prolonged period of loan repayment stress.
Banks in India today have a special loan section to cater to such demand called “Marriage loan”, where credit facility is made available to couples to plan a grandiose wedding. Don’t fall for these easy money traps as they charge exorbitant interest rates. The pain of repayment will remain for much longer in comparison to the glee and sounds of mirth of your wedding day. Stay within your budget. You don’t have to make everyone happy by burning through all your savings and borrowing some more.
Trying to make Birthdays and anniversary special by spending more money rather than time together
Birthdays and anniversaries are a special occasion in everybody’s life and everybody likes to feel special on these days. Feeling special does not mean splurging a lot of money to buy an extravagant gift, it could also mean spending some good quality time with each other. Just because someone you know has gifted his wife a new car on her birthday you don’t need to do it.
On my wife’s birthday this year, I gifted her a bouquet of rose, baked her a cake and spent the whole day with her and then went for a short staycation at a local hotel in UAE. I could tell that she was genuinely happy with everything. I’m not saying don’t give gifts, give gifts to make someone feel good but don’t go overboard on your expenses. Create memories.
Avoiding homemade food
Occasional outdoor dining is awesome, I love it. Eating out helps me to give a break to my Missus from the regular cooking and it also helps pleasantly surprise our taste buds with different cuisine.
Before I got married, I frequently ate at restaurants after work. This habit, however, not only drained me financially each month but also had several adverse effects on my health like weight gain, constipation, cholesterol, etc. Now if my taste buds crave some special food my wife and I try to learn the recipe on YouTube and prepare it at home. It’s healthy, cheaper and plus it is a good bonding exercise that has helped us grow in our marriage.
Spending excessive amounts of money on home decor
Home decor has a good vibe to it, I love the concept. But the frugal part of me does not permit me to spend a lot of money on home decor. In such a situation, the only recourse I have is to learn small DIY projects and do it along with my wife. Like cooking, my wife and I enjoy making little home decors.
So far we have managed to make a table lamp with Popsicle sticks, planting and maintaining our small indoor vegetable garden and decorating one entire wall in our bedroom with positive quotes from the internet. It has helped us save money by doing it ourselves plus it is a great bonding exercise to do things as a team in the relation. Your home is not an art gallery or a museum, so don’t clutter your home by hanging someone else’s work of art. Create one yourself, you may just end up creating fond lifetime memories in the process.
Vacations under social pressure
Vacations are a good time to unwind and relax. It is a time where you normally take a break from the monotony to rejuvenate yourself and also to strengthen your relations with your loved ones. We all need a vacation from time to time, but what we don’t need is an extravagant, flashy holiday just for the sake of social media likes.
Plan ahead and go on vacation based on your budget. You don’t need to go to some expensive place just because someone else you know has gone there and had a good time. Their financial goals and definition of a good time can be very different from yours.
Spending what you haven’t yet earned
Credit is available very easily these days from banks and other financial institutions. Be prudent and do not get lured by the ease of availing such credit. When you are borrowing money for consumption purpose you are essentially stealing your joys and happiness of tomorrow for instant gratification. This habit is a vicious cycle as your expenses will always stay one step ahead of your income. Plan your budget based on your current income and stick to it as though your happiness depends on it because it does.
Not having health insurance
Health care, especially from the cure standpoint, is very expensive. The treatment of a loved one is itself a very stressful event for a family, not having access to sufficient funds to cover the treatment or having adequate insurance coverage can be even more stressful. Having good health insurance relieves you of the financial stress during the treatment phase.
Research well before your purchase any policy, there are innumerable insurance companies selling absolute dud policies that are of no good to people in the time of need. The last thing you want to do when someone from your family is seeking treatment at the hospital is to start a battle with the insurance company due to coverage denial.
Conclusion
Financial prudence is not aspiring to be a billionaire or a millionaire, it is more about taking conscious steps to safeguard your personal interest and your money. It is about taking the small steps towards your ultimate goal, it can be something as small as spending more time with your family without having financial worries or job stress. Just like small savings have a positive snowball effect, in the long run, small expenses, too, if left unchecked can lead to a huge personal deficit. If you personally identify any of the above-mentioned behaviors then make small changes based on your comfort to rectify the situation.
If you know of any other behavior that can possibly degrade a family financial situation then I would love to read your views, please leave a comment below.
If you would like to learn more about frugal living, personal finance, and money-saving tips then please visit us at frugalkin.com.