Investment Tips: Do not make the mistake of increasing expenses when salary increases. Divide the increased income between investments, emergency fund and needs. Avoid big loans and review your financial goals and insurance.
Salary Increment: When salary increases after years of hard work, it feels like a reward. After months of budgeting and cutting expenses, it’s a big relief to have a little more money in hand. In such a situation, it is natural to feel like buying a new car, changing the phone or shifting to a bigger flat.
There’s nothing wrong with enjoying your hard-earned money. But an increase in salary is also a big opportunity to improve your financial future. The biggest problem is that as income increases, people also increase their expenses. Then after a year they wonder why there is nothing left in their hands. If your salary has increased recently, then you must avoid these mistakes.
spend the entire increased salary
Suppose your salary increases by Rs 15,000 every month. This entire amount can be easily spent on rent, eating out, shopping or new subscriptions. Soon you will realize that you are in the same trouble with the new salary as you were in the old one. Instead of increasing expenses suddenly, try to divide the increased amount. Invest a part of it, put some in your emergency fund and buy things of your choice with the remaining amount. By doing this you will be able to enjoy life while keeping your future safe.
Forgetting financial goals
With an increase in salary, it becomes easier to achieve goals like building your own house, creating a retirement fund or adding money for children’s education. But, most people invest this extra money in everyday expenses and postpone these big goals. The easiest way to avoid this is to increase your SIP or Recurring Deposit (RD) amount as your salary increases. If the money is invested before it is spent, then its lack is not felt later.
not creating an emergency fund
Mere increase in salary does not make you financially secure. Imagine, if you lose your job tomorrow, it will be difficult to pay EMI and household expenses. In such times, an emergency fund becomes a great help. The increase in salary should first be used to create an emergency fund. In this, it is better to keep money equal to at least 6 to 12 months of essential expenses.
taking big loans in a hurry
As your income increases, you become eligible for a larger home loan, car loan or personal loan. But this does not mean that you should take more loans. Just because the bank is ready to give you a higher loan, do not assume that you will be able to repay it easily. Large EMIs can have a negative impact on your savings and investments. Before you buy something with a loan, ask yourself: do you really need it, or are you buying it just because your new salary can afford you?
Failure to review insurance and investments
As your income increases, your financial responsibilities also increase. If you’ve recently got married, bought a home or started a family, your existing life and health insurance cover may not be enough. Similarly, the investments you made based on your salary five years ago may now be inadequate for your new goals. A salary increase is not just a part of your monthly budget, but also a reminder to review your entire financial planning.