- The power of compounding will work in your favor in the long run and you could see exponential growth in your savings.
- Always control your expenses. Living paycheck to paycheck and finding yourself struggling for money even before the month is out is a sign that you’re not spending wisely.
- You should always have insurance coverage so you don’t have to rely on your savings for medical emergencies and other contingencies.
New Delhi: Managing your finances doesn’t require a degree in financial management, but it certainly requires discipline and dedication to achieving financial goals at various stages of life. More than anything, financial planning over a period of time becomes a habit. It comes with objectives, such as determining capital requirements, formulating financial policies, and ensuring that scarce financial resources are used in the best possible way.
Too often, instilling the habit of financial planning seems like a tall order. When you start to plan your finances, you find yourself in a bind and you don’t know where or how to start. Here are some rules of thumb to follow when planning your finances.
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One mistake most of us make in our lives is when we start a career, we don’t pay too much attention to financial planning and developing the habit of saving. You have to start as early as possible in life. Even saving a smaller amount can give you a head start. The power of compounding will work in your favor in the long run and you could see exponential growth in your savings. Don’t procrastinate and start saving as soon as possible.
Regulate expenses wisely:
You should always track your spending carefully. Living paycheck to paycheck and finding yourself struggling for money even before the month is out is a sign that you’re not spending wisely. Unplanned expenses are the biggest hurdle when it comes to savings.
Try to prepare a monthly budget. Unless you have a budget, you won’t be able to control your unnecessary spending. A budget always keeps you on the path of financial discipline and shows how much money is coming in and how those funds are being spent.
Manage surplus cash wisely:
How you handle excess cash determines whether or not you’ll be able to achieve your career and life financial goals. When you don’t have a plan, you’re likely to overspend. This money can be used to make you financially self-sufficient.
In view of rising inflation, everything is going to be more expensive with each passing year. If you don’t invest, your money won’t grow to bridge the inflation gap. Otherwise, you may not be able to retire the way you’d like.
You should always have insurance coverage for yourself and your family so you don’t have to rely on your savings for medical emergencies and other contingencies. If you have financial dependents, purchase adequate life insurance preferably through a term insurance plan. Plus, get health coverage for everyone in the family. By paying a small cost as a premium for these hazard coverages, you ensure your savings aren’t affected when an emergency strikes and your family’s life goals aren’t derailed.
Create investment portfolio:
Building an investment portfolio is the first step toward financial freedom. Building a portfolio involves spreading your investment across various asset classes, such as stocks, debt, real estate, etc. It is known as asset allocation.
Although equity is the best vehicle for counteracting inflation and tax efficiency, it is not advisable to put all your money in stocks. You should diversify the amounts to be allocated in each asset class based on your investment objectives.