What seems like a useful purchase to you looks like a wasteful expense to someone else. How someone else advises you to spend your money could appear unnecessary to you.
If you are one of those people who is facing this dilemma of how to spend your income for the right things, here is a simple guide to help you out.
Note that these guidelines may not apply to everyone; your personal lifestyle choices, environment, and present situation could have a bearing on your financial decisions as well.
Spendings You Should Consider
1. Daily Necessities
Irrespective of how much you earn, you need food, clothes, and shelter. The associated expenses for these are daily necessities: your rent, groceries, travel cost, and other recurring costs. While you need these resources to go about your everyday routine, you should still be frugal in your initial years of being a salaried employee.
For example, try to use public transport as much as possible to bring down expenses. Sharing your apartment with a colleague saves a considerable of money in all aspects.
2. Debts and Loans
If you have just completed college, you may have substantial student debt to repay. If you have a student loan or any other loan, prioritise it over other expenses until you settle it. Use a loan calculator to estimate how much you have to set aside every month to pay off the debt and don’t compromise on that amount.
Delaying debt repayment further will only increase the interest and the overall amount, driving you into more debt. Refinancing is an option that many people choose but opt for it only if you can handle the subsequent loan responsibly. Moreover, a bad reputation regarding loan repayment will affect your credit score and prevent you from obtaining loans in the future.
3. Emergency Funds
It is always a good habit to save money for a rainy day. Emergencies and accidents are unexpected, so you will be in a better position to manage them when you have the money for it.
However, when you have an emergency fund, ensure you use the amount only for emergencies and not for other pleasures.
4. Well-Planned Investments
A standard bit of advice given to people who have started earning is to invest their money in some asset, like real estate or stocks. The world of investments is quite complex, so you need to be thorough with what you plan to do. If you invest well, the returns you get are a useful supplement to your regular income.
5. Retirement Savings
Another form of investment that very few people think of is retirement savings. If you are wondering why you have to invest for your retirement a couple of decades away, remember that saving now and receiving returns later is better than saving later; that is the power of compounding interest. Check with your employer if the company offers a retirement plan for all its employees.