Independence Day: With monthly savings, get "freedom" from debt
Do not spend more than what you can afford to repay, and decide your priorities wisely to avoid the burden. You can reduce the debt by saving monthly and investing in Systematic Investment Plan (SIP).
India will be celebrating 70th Independence Day tomorrow, marking 70 years of freedom from Britishers. Over the years, finance sector has witnessed a lot of changes from physical currency to plastic money.
With this transition came in the change in lifestyle which rose the "financial burden" on people like repayment of loan EMIs, credit card bills and other liabilities.
What people should now look at is to get "financial freedom" from debts.
The first rule to follow is not to borrow more than what you can afford to repay. A loan is something you need to repay and not a gift. So do drop the urge to borrow in excess hoping that you would be able to cut corners and make the repayments.
Adhil Shetty, CEO and Co-founder Bankbazaar.com said, "Keep your liabilities as low as possible. Put together, your EMIs and credit card bills should not be more than 30% of your monthly income. Credit cards, especially, come with high interest rates. So paying only the minimum amount means the money accrues over time along with a hefty interest. So, as much as possible, pay your credit card bills on time and in full."
Once you pay your bills, set aside an amount every month as savings. Use only the remaining funds for your monthly expense and try not go overboard, Shetty added.
One of the best way to develop saving habit is to invest in Systematic Investment Plan (SIPs). In a SIP, an investor put aside a certain amount which could be as low as Rs 500 either monthly or quarterly.
For instance, if you invest in SIP say around Rs 5000 per month for the period of five years where expected rate of return is 20%, then at the time of maturity, you will get back 5,08,791.
Which means, Rs 3,00,000 will be your investment amount and Rs 2,08,791 is your earning on investment. This amount is sufficient for you to meet your short term goals.
Hence, this Independence Day take a oath to get freedom from your liabilities and start saving now.