Are you earning enough? How to get started with your finances.

Most people would answer the above question in the negative. It doesn't matter whether you are earning ₹5,000 or ₹5 lacs a month, almost everyone feels the need to earn more. 

Take Rahul, for example - a software engineer earning ₹80,000 per month. He lives in Bangalore, pays ₹25,000 as rent, spends another ₹30,000 on daily expenses, and still feels he needs a higher salary. Meanwhile, his colleague Priya earns ₹1.2 lacs monthly but is constantly stressed about not making enough to buy the apartment she wants. 

One of the main reasons for this perpetual feeling of "not enough" is our never-ending 'wants'. These are things like a bigger house, a luxury car, brand-name clothes, international vacations, and countless other items that your neighbor or social media connections seem to have. 

While an individual's income may be sufficient to meet their current needs, it's usually not sufficient to meet all their wants -- at least not immediately. 

That's why the concept of savings was probably invented so that over a period, one could gather enough money to fulfill their wants and increasing needs. 

Unfortunately, the concept of delayed gratification is not the most appealing of things and an immediate inability to meet all our wants leads to dissatisfaction and unhappiness. 

Consider Vikram, who earns ₹35,000 monthly working at a call center. He desperately wants the latest iPhone priced at ₹90,000. Instead of saving for it, he takes a loan and ends up paying ₹1,05,000 with interest over 12 months. The immediate gratification costs him ₹15,000 extra and creates financial stress for an entire year. 

There have been various studies in the field of psychology and economics to understand the correlation between income and happiness -- and the findings suggest that the two aren't related. More money usually does not mean more happiness. 

Yet, most of us continue a quest for more money thinking it will enable us to buy our way to happiness and freedom. 

As Bill Gates very famously said once he became a millionaire, "After the first million dollars, it's the same hamburger". 

The reality however is that with more money, our lives could materially improve for the better in the short term even though the happiness may be short-lived. 

How to get started with your finances? There are two ways to earn more money. 

• Work harder and generate new money via a salary hike or expanding your business. 

• Invest your existing money so that you can get better returns. While the first option will happen for sure and it's completely in your control, my aim is to help you take better advantage of the second option. 

Assume you have ₹10 lacs saved in your savings bank account. 

Most banks offer an interest rate of ~3% per annum. If you leave the ₹10 lacs in your bank account for a year, you will earn ₹30,000 at the end of the year. 

Let's say you're Neha, a 32-year-old marketing professional. You've been saving diligently and have accumulated ₹10 lacs over the past 5 years. This money sits in your savings account earning 3% interest annually, which gives you ₹30,000 per year. 

However, you have been very busy at work and haven't been able to find the time to research various options and invest it, so you create a Fixed Deposit of ₹10 lacs in your bank. 

Fixed Deposits offer better interest rates than a regular savings account and most banks currently offer 7% interest for a year. 

At 7% p.a interest rate, you will earn ₹ 70,000 per year. 

For a few minutes of extra work involved in creating the fixed deposit, you now earn an extra ₹ 40,000 per year! 

However, if you had taken some time out to research other investment options, and invested your money in higher yielding products, you could have earned returns ranging from 10% to 20% per annum. 

Let's make this even more concrete. With your ₹70,000 extra, you could: 

• Take a nice weekend break (₹35,000). 

• Buy a new smartphone (₹25,000). 

• Still have ₹10,000 left for a nice dinner or to reinvest. 

This is all without working extra hours or taking on more stress - just by being smarter with the money you already have. 

So, there are 2 things you need to analyze if you feel you aren't earning enough: 

• Are you spending more than what you should be spending? 

• Is your money lying idle and not growing at its full potential?