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HIGHLIGHTS
- The power of compounding will work in your favor in the long run and you could see your savings grow exponentially.
- Always track your expenses. Living paycheck to paycheck and finding yourself struggling to make money before the month is even over 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 eventualities.
New Delhi: Managing your finances doesn’t need a financial management degree, but it certainly does require discipline and dedication to achieve financial goals at different stages of life. More than anything else, financial planning over a period of time becomes a habit. It comes with objectives, such as determining capital needs, developing financial policies, and ensuring that scarce financial resources are used in the best possible way.
Very often, instilling the habit of financial planning seems like a difficult task. When you start planning your finances, you find yourself in a difficult situation and you don’t know where and how to start. Here are some golden rules to follow when planning your finances.
Start early:
A mistake most of us make in our lives is that when we start a career, we don’t pay too much attention to financial planning and developing a saving habit. You have to start as early as possible in life. Even saving a small amount can give you a head start. The power of compounding will work in your favor in the long run and you could see your savings grow exponentially. Don’t procrastinate and start saving early.
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Regulate your expenses wisely:
You should always carefully track your expenses. Living paycheck to paycheck and finding yourself struggling to make money before the month is even over is a sign that you’re not spending wisely. Unexpected 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 unnecessary spending. A budget always keeps you on the path to financial discipline and shows how much money you receive and how those funds are spent.
Manage cash surpluses prudently:
How you manage excess cash determines whether or not you will be able to achieve your career and life financial goals. When you don’t have a plan, you risk overspending. This money can be used to make you financially independent.
Given the rise in inflation, everything is going to be more expensive from year to year. If you don’t invest, your money won’t grow to close the inflation gap. Otherwise, you may not be able to retire as you would like.
Cover the risks:
You should always have insurance coverage for yourself and your family members so you don’t have to rely on your savings for medical emergencies and other contingencies. If you have dependents financially, purchase adequate life insurance, preferably through a term insurance plan. Also get health coverage for all family members. By paying a small cost as a premium for these risk covers, you ensure that your savings are not affected when emergency strikes and life goals are not derailed for the family.
Create an investment portfolio:
Creating an investment portfolio is the first step to financial freedom. Building a portfolio involves allocating your investment between different asset classes such as stocks, debt, real estate, etc. This is called asset allocation.
Although equity is the best tax-efficient and inflation-proof vehicle, it is not advisable to put all the money in equity. The sums to be allocated to each asset class must be diversified according to the investment objectives.