Life gets easier when you gain sound financial skills and knowledge. However, unfortunately, many people lack them. Often, they struggle with issues like growing debt, financial emergencies, unnecessary spending and so on. No matter whether you are financially savvy or not, adopting these habits will put you on the path to financial freedom.
1. Prepare a budget: Preparing a monthly budget and following it is the best possible way to maintain your financial well-being. It will ensure that all your bills are paid on time and savings are on the right track. Further, it will pave the way for you to achieve your financial goals and resist the temptation to splurge.
2. Repay all your credit-card dues: Credit-card dues are a major hindrance to your financial well-being. Make sure that you repay the entire balance every month. Similarly, be regular with the repayment of other high-interest consumer loans, including student loans, consumer loans and others. Repay them on time and it will help you build a good credit record.
3. Create your emergency fund: An emergency fund refers to the money that you keep aside for unexpected expenses. Your emergency fund should be equivalent to at least six-month expenses. Apart from providing a sense of security, this fund will prevent you from opting for credit-card debts if there is an emergency situation.
4. Be aware of the difference between 'needs' and 'wants': Always be mindful of the difference between your requirements and wants. It will help you spend carefully. Needs refer to those things that you require to survive, whereas 'wants' refer to those things that you would like to get but aren't required for your survival. Give priority to needs in your personal budget. Once all your needs are met, you may allocate a discretionary fund for your wants.
5. Health insurance - an important consideration: The adage 'prevention is better than cure' plays a crucial role when it comes to your financial well-being. You cannot avoid the growing incidents of health-related ailments. Adding to it, increasing healthcare costs have made health insurance a must-have.
6. Term insurance: If you have financial dependents, you must have life insurance. Make sure that your insured amount is sufficient enough to take care of your family members' expenses and other non-negotiable requirements in your absence. When it comes to buying a life-insurance product, always buy a pure term plan. Do remember that although ULIPs or any such products combine insurance and investments, they ultimately don't serve any of these purposes.
7. Start saving as early as possible: Although it is said that it is not too late to begin saving for your retirement, it is always rewarding to start early. The sooner one starts, the better one will likely be during the golden years.
8. Don't ignore investments: The volatile nature of stock markets may scare you, but the only way to grow your money is through investing. And the obvious reason is the power of compounding. The magic of compounding will enable you to grow your money over a period of time. However, you need a long-time investment for that. So, make sure that you stay invested even during the sudden ups and downs of the stock market.
9. Home is where your heart is: Buying a home with the help of a home loan is probably the biggest financial decision made by you. So, always make sure that you borrow the amount that you will be able to repay. Here a simple thumb rule is that the EMI of your home loan should not exceed 30 per cent of your monthly income.
SIPs - your trustable friend in the investment journey: Systematic investment plan (SIP) refers to the methods of systematic investing. An SIP paves the way for you to invest small amounts over a period of time to create a corpus. Since this method spreads investments over a long period of time, it will average out your purchasing costs and help you stay invested even during both the ups and downs of the market.