Introduction:
In today’s credit-driven world, the allure of premium credit cards can be tempting. However, it is crucial to consider our financial realities before diving into the world of high-tier cards. This article aims to provide valuable insights to individuals earning less than 1 Lac (net) per month, shedding light on why pursuing premium credit cards may not be the most practical decision for them.
Understanding Financial Realities:
It is essential to acknowledge our financial limitations and make informed choices accordingly. While numerous individuals aspire to acquire prestigious credit cards, such as Amex Plat, HDFC Infinia/DCB, Axis Magnus/Reserve, it is crucial to evaluate whether our monthly income supports the associated lifestyle and higher annual membership fees.
Maximizing Wealth:
At the core of financial responsibility lies the objective of maximizing our wealth. We work hard for our earnings, and it is important to allocate our resources wisely. Expenses should align with our needs rather than succumbing to materialistic temptations or spending for the sake of reward points.
The Numbers Don’t Lie:
For those earning less than INR 1 Lac a month, the benefits of premium-tier cards may not be attainable due to the required spending to fully reap the rewards. Apart from airport lounges, which are available on mid-tier cards as well, the potential benefits may not be substantial enough to warrant the higher expenses associated with premium cards.
Managing Expenses:
To effectively manage expenses, it is prudent to allocate our income in a thoughtful manner. An ideal allocation strategy for someone making 1L a month could be:
Investment Target: 35.0%
Expected Expenses: 30.0%
Miscellaneous Expenses: 15.0%
Liquid Savings – Rainy Day Fund: 20.0%
By setting aside a reasonable monthly expense fund of 30-35% (INR 30k-35k), individuals should carefully consider how much of their expected expenses can realistically be made using their credit cards. It is essential to prioritize needs over wants and avoid falling into the trap of unnecessary spending.
The Psychology of Credit Card Spending:
Understanding the psychology behind credit card spending is crucial in curbing overspending tendencies. It is recommended to read our article, “Psychology of Credit Card Spending: Understanding Overspending and Strategies to Stop It,” which provides valuable insights into making mindful financial decisions.
Open for Discussion:
This article seeks to engage the community, encouraging readers to share their thoughts on selecting the right type of credit card for individuals with a maximum monthly expense of 30k-35k. Perhaps sticking to a good mid-tier card is a sensible choice for those in this income bracket.
Conclusion:
Choosing the right credit card is a critical decision that should align with our financial realities and goals. While premium credit cards may hold allure, it is important to evaluate our income, expenses, and spending patterns before pursuing them. By making informed choices, we can effectively manage our finances, maximize wealth, and build a secure financial future.
