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Sunday, 1 March 2015

My Fathers Guidance

Twenty years back I joined my first job at Rs 3000 per month as software engineer. I also got a credit card with Rs 20,000 limit and soon started enjoying the financial freedom.

A year went by, slowly I got into the habit of Paying the minimum balance occasionally. But when this frequency increased, the credit card debt with interest started to go up slowly and steadily. My father understood my trouble when a collection agent visited my house.
My father took me to the club for dinner. Once we sat down and ordered food, he started the conversation.

He asked me about my expenses and why I am not able to stop overspending. Initially I was irritated and immediately pointed out that we could have had the discussion at home and he would saved atleast 6000 rupees. But he calmly replied that he can afford it. He went to explain that we should limit our expenses to what we can afford. All these years I was his dependent son and was able to spend accordingly. But now being independent also means being self reliant. To increase my affordability, I needed to find ways to increase my income. He probably understood the thoughts going through my mind when he continued, being self reliant is not as simple as ensuring expenses don't exceed your income. 

He said I need to start saving and maintain different buckets, one for emergency cash which I can tap into in case of any emergency including illness, loss of job etc. Another bucket is savings which is to cater to medium and long term financial freedom, including children's education, children's marriage, retirement etc. Since I am not married, he can keep my savings with long term view. Being young he suggested I can opt more money in equity mutual funds which has more potential for growth but keep the rest in more safe fixed income components like fixed deposits. He also insisted that I should opt for term life insurance and health insurance. He opined to should keep insurance separate from savings and they should never by mixedup. He said what you are left from your salary after allocating to savings and insurance premium is my affordability and I should keep my expenses within that amount. Also, he said, "If you maintain balance in your credit card account, interest is charged to your new purchases also from day1 thereby depriving you of the interest free grace period. The credit card interest you pay actually brings down your affordability". 

My father told me that he has not touched upon purchase of property and car which he said can be discussed after I stabilize myself. He said he will help me by paying off the credit card balance immediately but asked me to work on the details of insurance and savings.

Now I am married with two children and it was my fathers advice which made me a self-reliant person that I am now.

Note: This post is written for Indiblogger's My Family My Pride contest sponsored by HDFC Life. For additional information click here.


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