How You Can Be Debt-free?
Hi folks, I welcome you all to another amazing post on how you can be debt-free.
Many times I have heard people saying that they have no savings for the future, no protection, and above that they have hefty loans to pay.
There have been people who are earning Rs 30,000 per month to Rs 3 lacs per month. But by the end of the month, they are left with nothing.
In this post, I will list down the five steps that can help you to become free from debt.
If you haven't gone through my previous posts related to mutual fund Investments, then here is the link below:
5 steps to be debt-free
The five-step process to become debt-free is:
- How did you get into the debt trap?
One of the reasons people get into the debt trap is their desires. The most common desires of the majority of people are expensive cars, expensive smartphones and watches, big homes, luxurious clothes, and so on.
People believe that by having all these desires fulfilled, they can create an impression of being successful and rich. To some extent, this is true. If someone has a bank balance of Rs 1 crore and owns a car worth Rs 5 lacs, then he will be considered poor compared to another person having a bank balance of Rs 5 lacs and owning a car worth Rs 50 lacs on debt.
Another reason people fall into the debt trap is the easy loan availability through smartphone apps. Instant loans are available within a few seconds at an unbelievable rate of interest. These loans are easy to get compared to personal loans.
And the next reason is the middle-class mentality where people believe that money is the only thing. People have the perception that once they get money, they have everything.
2. Why did this happen?
The next and the most interesting thing is people don't know why this has actually happened to them. They don't know where their money is going because they don't track their expenses.
One of the obvious reasons is the UPI payment system. It has become so easy for people to pay money simply by entering the four-digit PIN. They need not to carry cash with them and for every single expense they have been using the UPI payment system.
The convenience and ease of this payment method result in overspending and this has been proved in the research where youngsters have stated that they have been spending more since the launch of the UPI payment method.
3. How to get rid of this loan?
One of the easiest and best steps is to track your money. This means you should know where you have been spending even a single penny. Do this activity at the end of every month and you will have a clarity of where you have spent money unnecessarily.
Once you get to know about unnecessary spending, you will be conscious and try not to spend again.
Once you start saving money from your monthly expenses, try to pay off the loan amount. Try to pay off the costliest loan first which can be any of them above 10% rate of interest. If along with other loans you have credit card loan then aim for paying off the credit card loan first.
4. What after paying all the loans?
Once you pay off all the loan amount the next step should be your protection. This means you should have an emergency fund so that you do not fall into the same trap again. Build a Corpus of at least 6 months which will help you to fulfill the expenses for which you took the loan, previously.
You can keep the additional corpus in the form of an FD. After having sufficient emergency funds, you should start investing in mutual funds ranging from large-cap to small-cap funds.
The idea is not to kill all your desires and build huge Corpus for your retirement, rather invest your money wisely in various investment forms. You must maintain a mandatory budget for essential expenses like food, rent, etc. Then comes the budget of your desires and wishes which should not be more than 30% of your monthly salary and invest at least 20% of your monthly income.
5. Be disciplined
You must follow a disciplined pattern in your life. Even if you have a loan, you should not feel bored or emotionally burdened because that is the point where you will start losing the passion to make more money.
One day or the other people eventually find a way to get rid of the loans. But even if you have to proceed with this process then you need not to feel inadequate or unsuccessful.
I do not guarantee every one of you to follow this process to become debt-free, but I am sure that it will work for most of you who have been struggling hard to get rid of the financial burden.
Disclaimer: You must invest after considering your risk-taking capacity. The above information is not any recommendation or suggestion. It is only for an educational purpose. You must seek the advice of a professional financial advisor before making any investment.
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