Lovaii NavlakhiInternational Money Matters
While we don’t like preparing for emergencies, we do have a tendency to prepare for better days even before they start. Stock markets also factor in positive news before the event actually happens and if the event is less than expectations, it falls and vice versa.
At appraisal time, even before your income increases, you usually start planning for what you could do with the extra money that will be coming from the next month.
The most obvious answer, although not the most profitable one is that one increases his expenses. Because now that you are going to get higher income, you would want to raise your lifestyle! Be it buying that gadget (phone/ tablet/ kindle) or going for that vacation- newer plans are being made to spend money. A lot of times, in anticipation of that future increase or bonus, we end up spending even before we earn that money. Credit cards and personal loans facilitate that quite easily, the temptation and the ease of paying back in EMIs are too much to resist. What happens in a scenario when we don’t get that anticipated hike then? 1. Budget:
If there is a lesser than expected increase, do not revise your budgets, whatever small increase you may have gotten. Start a saving plan from that.
You won’t even realize it two months later. There is mental accounting involved where we feel if we have started earning more, we can now spend more. By saving/ stashing that money (in say a liquid fund) you don’t change your new reality and since you have not cut down on any expenses, you don’t really have to feel bad about it too. However, inflation does ensure we spend more money year on year, having a budget and sticking to it ensures you feel in control. 2. Future goals
: When we plan for the future, we make certain assumptions- increase in income at a certain level is one of them. In case you get a lesser increase than one anticipated, and that too for a few years in a row- it may mean that you relook at your goals and/or your lifestyle depending on what you choose to prioritize. It may also mean trading off one goal for another. The idea is that you know what you want in life, what is really important and that you will reach there, by saving/ setting aside a certain sum of money every month/ quarter. When you get/ don’t get a pay hike- it is a good time to relook at those goals. 3. Ability to service loans:
It is also a good time to relook at the loans you have and your ability to pay the EMIs. In case your living expenses are going higher and you are stretched for paying EMIs, it is time to relook at those liabilities and evaluate the same, even see if there is a lumpsum that can be negotiated to pay off to close a particular loan. This also becomes important to ensure you maintain a good credit history.
While we are only talking about the monetary aspects here, you might also want to introspect the reasons for the low increase and how it impacts your life. If this goes on for a few years, it may be an indicator for you to look at up skilling yourself or look at greener pastures.