Smart ways to manage your money!

By | December 21, 2011

You never know what’s in store for you! For instance, we cannot control outside events like recession. No matter what you do, it is going to affect all of us in some way or other. However some simple tips like optimum asset allocation, debt reduction, keeping emergency cash will help you tide over the rough times, without much damage.

Check your expenses and adhere to your budget

People tend to forget that good times don’t last forever. If you spend lavishly during good times and continue the trend without adapting to changes in circumstances, very soon you will land in financial trouble. Hence to ensure you lead a consistent lifestyle, always draw out a budget and ensure you stick to it religiously. E.g. if you have allocated Rs 500 per month towards your entertainment expenses, don’t spend a rupee more than Rs. 500. It will not only help you handle your finances better but will develop your willpower by delaying instant gratification.

Don’t rely on future income

Depending on future income in order to spend today, is one of the biggest mistakes we make. This has been evident during a job crisis, where youth racked up a huge credit card debt and took heavy loans. But when the salary cuts and job losses occurred, they were unable to pay off their debt. E.g. if your monthly income is Rs. 20,000 always ensure you spend well within  Rs. 20,000 as pay cut or job loss may land you in trouble.

Reduce your debt

Got a bonus? Then pay off any loans that you have taken. If you have multiple loans, first pay off the loans with the highest interest rate, then the one with second highest rate and so on. E.g. if you have a credit card debt, personal loan and home loan, first clear off the credit card debt, then personal loan and finally home loan. For this you will have to plan out your debts and then go on following it systematically and steadily. It will not only save you money but will also give you mental peace.

Opt for strategic asset allocation

Though experts have consistently stated the importance of asset allocation, many investors tend to overlook this fact and invest only in the hottest asset. But remember market conditions do change and what is hot today may be out in the cold later on for a long time. So ensure you divide your portfolio amongst stocks, bonds, gold and real estate to get the maximum returns from your portfolio. Though your portfolio may under perform for some time, it will end up protecting you when the things get rough.

Keep emergency cash

You never know when a crisis can strike your family. Death, disease or job loss can end up upsetting your investments. You might be forced to sell your investments though they have not been given you any profits. Hence it is advisable to keep at least 3-6 months of your household expenses aside as emergency cash.

Sort out Your Finances

Agreed, keeping tabs on and handling your finances closely, may not sound like an interesting job, but it is a necessity. However you can reduce the boredom by putting a system in place. Once it is done, you can spend a few hours a month on this job. E.g. on Sunday, you can spend 1-2 hours to find out how your investments are performing, reading up any news concerning them or talking with your financial planner about the performance of your investments.

Plan in advance

One of the reasons many people land in financial mess is that they don’t plan their finances ahead. So it is imperative to plan your finances properly. Find out your current position, where you intend to go and set up a feasible plan to achieve your objectives. Unforeseeable events may occur and make you stray away from your plan for a short time, but ensure you get back on track at the earliest. Always remain focused and keep a watch on your progress. E.g. you are saving to buy a home and have started investing for the same. But 6 months after you started investing, you lose your job. If that happens, stop your investment, get a new job and again restart your investment.

Invest systematically and gradually

The biggest problem is that most people don’t bother saving till it is quite late. So they don’t have any money to fall back on in case of emergency. Hence it is essential to start small, but regularly and then increase the amounts later on. E.g. you can start a SIP, in which a particular sum is debited from your bank account and invested in a mutual fund. Or you can open a recurring deposit, which acts like a SIP, initiated by the bank. All this will occur automatically, so you have no excuse not to save.

Be in charge of your investments

The markets have crashed, the realty is down in dumps. What do you do? Sell off? Wrong. Unfortunately, this is what most investors do. In this situation, it is advisable to hold on to your portfolio as selling will just end up causing you financial loss. Instead increase your emergency cash reserves and periodically review your asset allocation of your portfolio.

Set a realistic outlook

The days of stocks giving a return of over 40% are over. While it is possible some of them may give you those types of returns, it is setting yourself up for disappointment if you keep your outlook very high. Instead keep a practical outlook of earning 12-15% returns from your investments.

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35 thoughts on “Smart ways to manage your money!

  1. Vrushali Gude

    NIce Arcticle .Very helpful for each and every person

  2. jaykayess

    Good tips. By far the most important one is to keep a continuous watch on all your finances – cash flow, investments, everything.

  3. svmahesh

    This is a nice article. But what a person like me can do when my monthly income is Rs.9000/- per month and managing my household with great difficulty.

    1. Rajesh

      I agree with you that it is very difficult to manage your houshold expenses with that source of income. I would advice you to invest your time and money in learning new skills that can help you in increasing in your income source. The other option is to encourage your family members like spouse to also help you in increasing your income.

    2. sripathy

      Try to save at least hundred rupees a month, I used to do so and slowly my savings increased! some saving is better than no saving!

  4. Johnsonsjesussons

    Saving money from whatever a person earn peridically on the fixed income has a pendulam effect and something above routine disturbs the whole saving plan. What is required is a meticulous plan by the income provider to sort out a percentage convenient for the earning member and enable a system for him or her. However, this depends on the will of the provider of income and it is much desired that they may devise such a thing in the interest of all earning members that they may have a fund generated and alternatively the income provider can charge a small maintenance charge when such of the fund is completely withdrawn by the earner.

  5. viond

    Habit for saving is indeed good as it is like insurance to come handy in future during the time when the value of resources is depriciated and when cash flows automatically gets rduced.It also helps us to meet some unforseen demands and we can lead more independent life. But it does not mean that it is the only way to lead life in comfortable manner. This can find takers form the common men who always like to live in protective envirionment . But there can be total different set of people who like to live in present and enjoy the present offcourse without raising liablities or encroaching rights of other people. These men have confidence in their abilities that they can generate fresh resources as when need arises in future. Their thinkig is that do not depend much on what is available to-day but make oneself so strong and develop potential to meet any contingency. They belive that it is the contingencies and accidents which brings new INVENTIONs and precisely that is the root cause of our progress.

  6. Jiza

    A very good article. Helps To become more aware of ones finances. And seek help if in a difficult situation.

  7. Anika Jain

    Nice article
    I do all of it all and when I read it is when I understood.
    Hope I am able to follow these from now on..

  8. Usha

    I have been regularly reading articles on MSN
    Indeed ,enjoyed reading this as well ,a very nice article ,much appreciated the efforts

  9. jagannathan

    It is more than must for any one to read.The lucid suggestions are superb.Curbing impulse purchases can keep the finance intact and keep availabiliy of funds.Good to read/.
    Keep the good show

  10. Asha

    very beautiful ………………great …………must read………….

  11. pragnesh

    it will very helpful to me as well to all new generation.

  12. Srigiri Srinivas

    Very nice article. It is really useful tips for who are not aware of saving for their future.
    It is a tonic for who were facing financial troble.
    keep it ………………..

  13. Shankar.S

    The Article is very nice……………thinking of adapting to this practice in coming days……………………….

  14. A Jyosna

    Nice article. Also, one can invest in pension plans which will generate guaranteed additional income all throughout life. Rather than investing in uncertain investment plans and losing money.

  15. Ramesh Chaubey

    Undoubtedly a nice article on an important subject. I would like to add that if someone wants to keep one's finances in good state of health he need not think to live in debt and should always try to limit his expenses within his income. My late father always advised me that if you want to live in the state of mind peace and happy forever then try to live debt free. Thank God I followed my father's advise and I feel that I an a happiest person in the age of 65 living with no liability.

  16. Abhijit Haldar

    Nice tips. Every person should plan for the future & atleast try to save some MONEY.
    So that they can't beg infront of there near & dears.


  17. prithi

    Could you suggest some good sources to invest- name the stock, Mutual Fund group, Insurance , bank scheme with ighest interest rate and so on.

  18. gaurav pokharna

    its nice n it will be match 2 my thougt n realy its 2 good 4 yr good future n mainly my age boys who spend her money in totaly enjoy bt they dnt knw it's time is our saving.. so pls thnk abt our future

  19. jassy

    i'm very new to this web site, any way this article provides a very valuable information. To make money is hard but to save money is too hard. Hello fellows, personally i want to learn for personal finances but don't know from where to start? Please refer me good books or web sites … thanks..


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