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The global meltdown has made an impact on Indian economy also in the recent years. There has been salary cut and a large number of employees have lost their jobs. For the first time in the post-globalised economy, Indian workforce has realised the need of a structured Financial Plan which will take care of their needs at the time of financial uncertainties.
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Strive to be a Knowledgeable Investor:
One should aim to understand more on personal finance and be more financially literate. One might have a financial advisor or a portfolio manager to take care of finances but it is important to understand the basics of the financial planning. There are many websites around the same and most financial institutions have a separate section on their website dedicated to improve the financial literacy of the retail investor. Some of them are:
www.moneycontrol.com
www.personalfinancewindow.com
www.personalfn.com
www.jagoinvestor.com
www.mutualfundsindia.com
There are several books available on this topic as well like Sixteen personal finance principles every investor should know by Manish Chauhan and The intelligent investor by Benjamin Graham. One should read literature on personal finance using reliable sources and become financially aware.This will help one to be an active participant in his or her financial planning process rather than being completely dependent on the financial planner.
Credit cards give one the freedom to buy now and pay later. This can lead to overspending and the expenses can soon spiral out of control if not kept in check. As far as possible, one should use cash and debit cards for purchases so that he or she is aware of the expenditure. Only one or two credit cards should be kept and those should be used only for emergencies. The credit card bills should be paid on time so that interest charges and late fees are not incurred.
The interest charges range from 2.5% to 3.5% per month. Interest on outstanding balance is calculated on a monthly basis and any new spends are added to the outstanding balance on which interest charges are calculated. The interest rate on the Credit Card is much higher compared to other financial products offered by the banks to the customers.
Eliminate Unnecessary Spending:
One should rewind 2013 and list the expenses that one made which could have been avoided. The impulse expenses should be avoided. One should also reduce unnecessary expenses like regular coffee shop trips, eating out on a daily basis or buying flashy gadgets. Think about why the impulse expenses took place. If it is about keeping a social image or to kill boredom, take steps to change this mindset so that your savings are more. Cable subscription plan, internet plan and mobile phone plan should be re-checked and one should decide if the plans are the optimum ones for one’s usage and change it if necessary. Reduced expenses will lead to more savings that can be channelled into suitable investment avenues.
Avoid keeping huge bank balances:
One should keep an eye on the amount of money in the savings or current account. If it is more than that required, the money should be moved to better investment avenues. There are investment options like liquid mutual funds where withdrawing money is simple and cost effective. Leaving cash idle in the bank will result in lesser returns over a longer period of time. The table below shows investing in the right funds will give you better returns compared to keeping the money idle in savings bank accounts.
Start a Joy Fund:
Saving and Investing are the core aspects of personal finance but one should use one’s money to do what he or she likes. It is a good practice to keep aside an amount (around 5% to 10% of your income) to do activities that one likes be it traveling, spa visits or buying gadgets. This kind of fund will ensure that one rewards oneself with what one likes and be within budget.
Set Aside a Cash Reserve:
Emergencies can hit anyone. There could be medical expenses, layoffs or natural calamities. These are tough situations from an emotional as well as financial perspective. If one has the finances on track, it will help one to have the courage and strength to face unexpected circumstances. Depending on one’s status in terms of family and age etc. a cash reserve of up to three to six months expenses should be readily available.
Plan your Retirement:
Life Expectancy is increasing all over the world. In India, the life expectancy in 1980 was 55.35 years and in 2011 it was 65.48 years as per data of World Bank. India does not have a social security plan in place for the elderly. So. it is important to save up and plan finances for the sunset years. Many people ignore retirement planning. It should be on priority. Planning for retirement can be done by listing down retirement goals; estimating cost of living during the retirement years by factoring in current inflation rate, medical expenses and then building an investment strategy around it. The investment strategy should focus on how much wealth one has to create so that the returns will be enough to take one through the retirement years comfortably from a financial aspect. Retirement Planning should ensure that the retirement corpus that is built is such that one need not work to earn a living.
Make a Will:
People are not comfortable talking or even thinking about making a Will as it is connected to one’s death. But death is inevitable whether you think about it or not and it is better to make a Will rather than leave family and loved ones confused or bickering about how to divide the estate. Will creation will ensure that one’s wealth and property is distributed as per one’s wishes and secure one’s wealth and the financial future of near and dear ones. One should create a Will and register the same. It will ensure that loved ones receive the estate as per one’s wish and without many legal hassles.
Spending a little time to plan and work on personal finance will ensure a secured financial future and peaceful life.
This article was originally published in IndiaNotes and Personal Finance Window
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