Spend wisely, or else any income, no matter how high or low, will get exhausted. This money management rule has been passed down by Indians for generations. However, as lifestyle expense reach a new high and e- commerce giants find their way into our pockets, this age-old wisdom seems to fade away, giving rise to what I call the “Financial Leakage Syndrome” 

The best way to explain this concept would be through an example. Rohan Nair is an human resources executive in his early 40s. He earns Rs 24 lakh per year, yet finds it difficult to save a single penny. His argument is simple, “Life has become too expensive. Taxes, EMIs, tuition fees are killing me.” On the other hand, his wife, Neeti, disagrees and says that this has been their case for the last 20 years. She strongly believes that they could actually save much more and I completely agree. 

The starting point to plug financial leaks is to take a look at the Nair family's monthly inflows and outflows. There were common outflows like home loan EMIs, their son's tuition fees, groceries, transportation, utilities, etc, which came approximately to Rs 1.5 lakh per month. Their lifestyle expenses like eating out, shopping, alcohol, cigarettes, etc would cost them approximately Rs 50,000 per month leaving little to no room for savings. 

This is exactly where most people would shrug and say, “There just isn't enough to save or invest”. But if the Nair family would cut down their life style expenses, they can save Rs 20,000 per month. This can reach a corpus of Rs 52.42 lakh in 10 years and Rs 2.63 crore in 20 years. (The amount is approximate, calculated at 14% rate of interest)

If you haven't figured this out already, allow me to let you in on the secret; the amount you save, how much of that you invest in equity and most importantly, the time you allow your investments to grow will be the building blocks for wealth. This particularly applies to you if you are keeping a lot of money in low-interest savings accounts or fixed deposits and at the same time keeping high interest loans. 

As we saw in case of the Nair family, money that has been spent and served no purpose could have contributed towards Rohan and Neeti's retirement, their son's wedding or education or anything else. 

A few other typical sources of financial leakages that people are exposed to is buying on credit and making minimum payments on credit card outstanding balances. Making minimum payments and using the credit card for future payments at the same time affects the credit score. Additionally, over utilising the credit card limit has a bad impact on the credit score. This could expose the person to penalties and impact their loan eligibility thereby, exposing them to unnecessary financial risks. 

Your lifestyle should match your current income, savings and financial situation. Indulgences are fine, but you must save a portion of whatever you earn today for your future, irrespective of how little or more you earn. The best way to do this is to identify these financial leakages quickly and take corrective actions to avoid turning a small leak into a massive drain which would ultimately take you down. 

The writer is founder of HappynessFactory.in