Life holds a lot of responsibilities, the major ones being financial security. In the initial years of our job when we start earning and get the privilege of a credit card, we usually do not think much when spending. We indulge in lavish expenses like a sports bike or couture dresses and bags. These expenditures often account to credit card overspending. While these are a few minor aspirations, there are other key aspirations that we should chase after. And it is absolutely essential that we accumulate finances and have financial security.
A financial planner can help you plan on your investments and how you can retire with a fat bank balance but hiring one requires a hefty amount of money. So the best bet is to learn how to control and plan your own finances, savings and investments.
Here are a few simple steps for successful financial planning:
Set your financial goals
This is the fundamental of planning your finances smartly. Question yourself: ‘What is it that you want to attain in the next 5-10 years?’ ‘What are your life ambitions?’ ‘Do you want to own a house or a luxury car?’ ‘Do you want to marry and settle down?’ Do you see your family around with kids?’ ‘Do you have any financial responsibilities that you must fulfil?’ After all these, comes one of the most important questions, ‘Where do I see myself after retirement?’ Make a checklist and plan on the various funds that you must accumulate to fulfil your goals.
How are you spending your money now?
What is your savings and what is your expenditure at the end of every month is something that controls your financial planning. Are you spending your entire salary on a luxurious lifestyle or is a certain amount getting deposited in the bank savings? Have you also thought about those unexpected expenses and disasters that might require you to break the bank? If not, start planning and stop spending ruthlessly.
Here’s a little guide who you can calculate that seamlessly:
- Go old-school for this one and keep a small notebook with you. Write down how much you spend on transportation, housing and rent, food, clothes, bills and miscellaneous luxuries. Also, don’t forget to add occasional expenses like bike servicing or car repairs.
- Sort it out and assess all the expenditures for a period of three months. Is there something you can strike off the list? Maybe, cut off a few luxury expenses.
Have you planned for the unexpected?
Having a fund to meet unexpected needs is more important than even paying your monthly credit card bills or EMIs. You must stash at least 3-4 times of your current monthly salary for emergency funds like loss of a job, health emergencies or any unwanted damage that might be covered by insurance. Consider this a priority and start saving as a bank recurring deposit or a fixed deposit.
Make financial plans for your retirement
What? Retirement plans? Now? But I just got married! Should I not plan for next year’s vacation? Or even better, my child’s education? Or our dream home? Why think about retirement so soon when there are years ahead of me. You might not understand the importance of it but financial planning for retirement is of crucial importance. It is your future and you must save enough to enjoy fuss-free retirement years. So, START EARLY!
If you are 30 years and investing Rs. 10000/month through SIP equity funds, you get a 10% interest every year and can retire at 60 years with 6 crore balance. Isn’t that amazing?
Check your credit score
At some point in your life, you might be needing a loan, be it a home loan or an education loan. Credit Score will be of help then. Whether a bank will grant you a loan or not depends on your credit score. If your credit score is 700 and above, the bank will readily grant you a loan; but a credit score below that will bring in a lot of trouble. If you have not checked your credit score yet, start doing so online. Maintain a credit report. If you have a low credit score, rectify it.
A tip to rectify your credit score is to pay your monthly credit card bills within the scheduled date. Set your credit score right to easily get loans sanctioned by the bank.
Start a housing fund and an education fund
A home of your own should not be a dream, make it a reality! Owning a property these days is a challenge, but with smart financial planning and investment, you can overcome this challenge. Start keeping money aside so that it covers the down payment, ie., 20% of the total property cost while the rest 80% can be taken as a loan.
Start investing for your children as soon as they are born. As per the inflation statistics, education inflation is steeper than any other inflation. So you must invest through years so that it covers your child’s higher education.
The key is to streamline your salary and earnings into different funds and enjoy a stress-free life.