The current economic challenge for the working middle class
I belong to the working class where most of us live from paycheck to paycheck. This means dependence on the salary from the point you begin to work to the point you retire.
This also means planning to have some savings for the future, a fund for emergency expenditure and some go towards my retirement.
The economic pressures of the current times
Ever since the Pandemic the prices of commodities and the day to day things have been quite erratic. Not only that there has been an increase in prices of practically everything.
Why the salary hike cannot keep up with the price rise?
Well this may be the question on the minds of many because at the end of the day we work to support our self and our families.
There is a component of salary which is linked to our performance as incentive.
With the current economic times which are stressful to say the least one is finding it hard to meet the targets. This is also because the targets are often set when the situations were more economically friendly.
The bar is always raised in comparison to the teams performance.
The DA or the dearness allowance component of salary is not adequate to keep up with the rising prices and the cost of living. Besides it gets taxed along with the rest of the salary.
The collective effort of all these forces
As a result the expenses are on the rise and yet the income is more or less stagnant.
This means putting in more work and getting a side hustle.
Where are the jobs to make ends meet?
The added stress of work leave one with little energy to get a part time job. Starting a side job takes time to start generating returns.
Is taking a loan the only option ?
If expenses are more than income one tends to take a loan. This seems to be the logical thing to do for many.
However is this the viable option in the long term?
If your income is more than expenses that is the ideal situation and you would not be required to take a loan and pay interest on the loan amount.
However taking a loan means one has to incur expenses towards paying the interest in addition to the principle amount.
Beware of the debt trap
This leads a lot of people falling into the debt trap. This is a situation when they do not pay or are unable to pay the interest as well as the borrowed amount.
In some cases they pay only the interest amount or a part of it.
So the amount due can keep piling up.
Rate of personal loan as per banks is in double digits.
Currently it is about 12% and in addition it requires a lot of paperwork and processing fee so this is not a very viable option.
I have seen a couple of friends use their credit card to take a loan.
This has the advantage that there is no paper work required you can simply go to the ATM and swipe your credit card and you have the cash that comes out of the ATM.
Pretty enticing right ? WRONG! the Processing fee and the interest rate should be a deterrent. A lot of time people use this route simply because it seems like the easiest way to get a loan and cash in hand.
However the interest rate ca go up to 35-40% which is financial suicide.
The method I use involves
- Making a list of expenses
This ensures I enlist all the possible expenses so that as far as possible there are no unscheduled financial surprises that may spring up - I match it to the budget
I know how much money I have in hand and this can help in knowing my spending limits - Prioritize my expenses
Some expenses are essential and need to be done on an urgent basis this could be school fees payment of bills etc.
Some expenses can be deferred to a later time. - Sort the list according to the list of priority
- Next check how much more money is needed beyond the budget.
This helps to get the big picture
Armed With a sorted expenses list one gets a objective view of the expenses.
My 50 days interest free loan plan to meet my expenses
Now I use my credit card to work
The way I schedule my expenses
My billing cycle of the credit card states that the credit card statement gets generated on the 24th of every month.
Post generation I see that the 13th of next month is the payment due day.
This payment due date means I can pay the due amount till this due date without any late fee or charges.
I schedule my expenses according to my credit card billing cycle
For this plan to work I do two things
As far as possible I plan my expenses after the 24th and secondly I try to make all my payments using my credit card.
What this does to my finances ?
What buying after the 24th does to my finances ?
Buying post 24th means I have more time to pay back
Suppose I make a purchase of $1000 on the 25th using my credit card this means the credit card statement gets generated on the 24th evening of the next subsequent month.
This means free credit of one full month before even the credit card company sends me the bill for the purchase I made.
In addition I get another 20 days to make the payment.
This means simply by scheduling my purchases I am able to get free credit for 50 days.
How cool is that ?
What to do with the money I already have ?
These are scheduled purchases for which I mostly have the money to spend. I need to put this money to work and earn some money with this.
I am not going to put this money into some high risk investment like stocks, crypto or gamble away in the hope of winning the jackpot.
Instead I put it in a term deposit in the bank . The bank gives a fixed rate of return of about 5.5 % per P.A not much but still my idle money earns some thing which is free money for me.
I make sure the term deposit matures before the due date of the credit card payment.
I ensure timely credit card payments
This ensures there are no late charges to be paid and this is one thing which I employ to manage my expenses.
Another thing which I do is accumulate the reward points. My credit card gives me reward points based on the amount I spend.
As a feature of the card the points can be accumulated and these points can be redeemed for cash or used to settle the credit card bill using the pay with points feature.
Every bit adds up
when it comes to managing finances every penny counts and gives a better control over the finances.
Managing my daily payments with credit cards
Some cards have promotions from time to time which offer cash backs on spends.
I use these opportunities to earn on my spends
Always be on the look out for offers
I look forward to offers like cashback and bonus reward points I try to make use of this kind of offers to manage expenses on my budget list.
Conclusion & final thoughts
Money management is a tool which can help better manage money to balance expenses and money in a better way.
In addition it would give us an objective view and a firm grip over our finance.
It is time we start managing our expenses in a way that we are in the driving seat of our finances.