--By Hena Mehta
Does managing money seem overwhelming to you? Don’t worry, you are not alone. Here are some quick pointers that can help you on your path to financial wellness.
As with most things in life, there is a learning curve involved in taking charge of your money. Understand the basics: start with the concepts of inflation, compounding, taxes, risk and return. Learn about different ways to invest your money, and the basic insurance plans you need to have in place to protect your wealth. Chalk out as little as thirty minutes a week for this, and you’ll start to feel comfortable with how money works.
You know how much you make but do you know how much you are saving? Set budgets every month and take a hard look at your expenses. You may find unnecessary and avoidable costs, which you might realise by paying closer attention. Set aside all sayings and investments right when you get your pay cheque. Your savings aren’t what’s left over after you spend — it’s the other way around.
Prepare Financial Goals
Most life goals are financial goals. In order to understand how to invest your money, you’ll need to identify your financial goals. A goal has three parts: a purpose, a duration and an amount. For instance: I want to buy a car in three years, that costs Rs. 6 lakh today. Once you write down your goals, prioritise them. This will pave the path for your investment decisions. Outline both short term and long term goals. These could include things such as vacation, a car, a house, education — or even that shiny new gadget that’s on your wishlist. If you’re goal-planning with a partner, put down common goals as well as individual goals.
Invest As Per Your Goals
Now that you’ve determined your goals, you can start investing towards them. A Systematic Investment Plan (or SIP) is a great way to make investing a habit and save up for your goals in an automated manner.
SIP, as the name suggests, is a systematic, structured means of investing. It essentially involves deducting a fixed sum of money from your bank account and investing it at regular intervals (typically monthly) in the mutual funds of your choice. The amount to be invested can be as low as Rs 500 and can be increased as needed.
Mutual funds help you participate in a wide variety of stocks or debt instruments by purchasing individual units of the fund. SIPs give you a convenient way to invest in these mutual funds regularly.
Have Adequate Insurance In Place
By and large, health insurance gurus suggest that an adult (above 21) should have at least a cover of Rs 5 lakh when you are in your 20s and keep going up as you grow older. And yes, you need medical insurance even if you are in your 20s. While you may feel you are never going to need it, medical insurance has a very real purpose, to provide your health care without throwing your life into financial jeopardy. If you have dependents, look into a term insurance plan. A good coverage amount is eight to ten times your annual income. This way, you have a safety net corpus for your loved ones.
Create “Peace Of Mind” Fund
If the crisis has taught us anything, it’s that emergencies come unannounced. Always have up to three-six months of your fixed expenses in an accessible place. This can come in handy during unexpected situations, and will give you peace of mind.
Keeping a tab on your finances is a periodic exercise. Revisit your savings, investments and insurance plans at least once every six months, and every time there are changes in your income, expenses or goals. Be current with your knowledge of what’s happening in the market to take advantage of any lucrative investment opportunities.
Follow these simple steps and you’ll have a money mantra that will lead you to financial wellness!
(The writer is Founder and CEO of Basis, a platform that powers financial independence for women)