“Paycheck to Paycheck” or “Paycheck to Financial Wellness”?

First week of the month is the happiest week for professionals and third week of the month is the gloomiest week.

First week of the month, “THE SALARY” is credited to your account and feels good to see the balance in bank account. Second week, the income will be channelized to expenses and EMIs of the month. Third week will be the reality check, where you will be left with pennies to survive. Fourth week will be "A Praying and Waiting Week". You will be praying for no emergencies to crop up and waiting for the next month salary…

A Paycheck to Paycheck life.

When I discuss personal finance with professionals, I came to know that their ASSUMED FINANCIAL BALANCE is far too different from REAL FINANCIAL BALANCE.

BALANCE BETWEEN INCOME AND (EXPENSES + EXPENDITURE + GOALS)

Majority of the salaried professionals believe that, if their Income and Expenses are balanced, then they are on right financial track. At the end of month, their equation looks something like this.

Income = Expenses

Before knowing the right equation for financial wellness, let us understand Expenses, Expenditure and Goals.

EXPENSES :

Expenses are outflow of money which has very less frequency. To keep it simple, regular monthly outflow of money or weekly outflow of money is your expense. Paying your monthly bills, groceries and household products, house rent, transportation and fuel expenses etc. These are the mandatory outflow of money.

EXPENDITURE :

Expenditure are also expenses or outflow of money which might have a higher frequency or no frequency at all. Paying your child’s annual school fees, your insurance premium payments, spending on your vacations and you might have to pay up for emergencies you come across, gifts for your friends or relatives on different occasions and other lifestyle expenditures. These are random outflow of money. This area is normally not considered in layman’s budget.

You have to assign one part of monthly income for EXPENDITURE. This will become your EXPENDITURE AND EMERGENCY FUND.

GOALS :

We are striving and working day and night to achieve our dreams. Everyone have dream of having a car, staying in own house, financial freedom and the list goes on. If we need to convert those dreams into goals, we need to set a deadline to that dream. As said by Napoleon Hill, “A goal is a dream with a deadline.” It is time to set some financial goals.

Financial goals might be buying a car, buying a house, child’s education, child’s marriage, happy and peaceful retirement etc… Identify, define and prioritize your financial goals and set realistic deadline.

Once you set your goals, then make a decision of saving a part of income and investing in the right investment vehicles to achieve your financial goals.

THE RIGHT EQUATION

To have a right financial balance, your equation should look like this:

Income = Expenses + Expenditure + Goals

CONCLUSION

Paycheck to paycheck life is a life of survival. But if you want to thrive and become financially well and successful, you need to have a balance.

“Balance is not something you find, it’s something you create.”

If you have enjoyed this post and if you feel this would help your friends, share it with your nearest and dearest ones. And if you have concerns and struggles regarding your personal finance, comment below.

-Signing Off-

Pruthvi Ravi