Planning in advance is crucial in order to secure your financial future. Here are a few tips to get you started on your journey towards financial freedom.
As working individuals, we’re constantly striving to build a strong financial foundation and secure our future. Most of us aren’t clear about how much money we should save or where to invest. And because of our limited knowledge of money management, we skip budgeting and end up spending all our income.
It can be said that the main culprits for our reckless money habits are ignorance and procrastination. And because of this, we often end up making a lot of wrong choices – bad investment choices, portfolios that do not match our goals, not enough savings etc.
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Remember, you do not achieve financial freedom when you get your first paycheque. Rather, it is achieved only when you get a hold of your finances. And to get your finances in order, you need to plan well in advance. We know that it isn’t an easy task to plan your finances. So, here are a few tips to get you started on your journey towards financial freedom.
Judicious vs Reckless
Are you a judicious spender or a reckless one? You might be wondering why we are asking you this. Well, in two words – it matters!
When it comes to planning your finances, it is important to take your expenses into consideration. A judicious spender understands and differentiates between his/her needs and wants. On the other hand, a reckless spender cannot differentiate between his/her wants and needs.
To secure your financial future, you need to first learn to differentiate between your wants and needs. Only then will you be able to rule out unnecessary expenditure and start saving a substantial amount every month. Also, managing your finances wisely will help you gradually increase your savings. This, in turn, will help you accumulate a lot of wealth in the long run, provided you invest wisely.
Additional Reading: The Really Smart Guide To Building Wealth Quickly
Set Your Financial Goals
While climbing the ladder to financial independence, your focus should be on your financial goals. Your financial goals can include clearing all your debts, planning for your retirement, creating a contingency fund, buying a house or car, etc. Set your goals, along with deadlines for the same and work towards them religiously.
Also, it isn’t just enough to set your financial goals. You need to check your progress periodically.
Additional Reading: Are You Saving Enough For Retirement? Find out!
What would your family do if something were to happen to you? Wouldn’t you want to secure them at least financially? Well, that’s why insurance is a must-have for every individual. Basically, by acquiring insurance, you are protecting your dependents financially.
Ensure that you buy both Life and Health Insurance with adequate cover. When it comes to Health Insurance, we recommend that you buy an adequate cover for your entire family – spouse, kids and dependent parents.
Read Offer Documents Carefully Before Investing
Investing is a healthy practice, especially when you aim to build a solid financial future. But, if you’re new to investing and don’t have prior experience investing, then you better understand the basics before you jump in with both feet.
Yes, you can take advice from your friends, colleagues and family members, but even they may not be well aware of the investment scenario. A better idea is to befriend a certified financial advisor to hand-hold you through the investment process. Besides, he/she can teach you a great deal about the financial world – investments, tax, markets, etc.
Don’t Be Averse To Risks
A little bit of risk doesn’t hurt. Take some risk when it comes to investing if you are looking to build wealth. Most people avoid taking risks because they do not understand different investment products. This is why you must first learn the basics of finance and investments. Read, ask your friends and family members, or get in touch with a financial advisor.
Also, when we tell you to take risks, we do not mean that you blindly invest in every product and scheme which promises you high returns. Rather, be wise, do your research, watch the market and invest in some of the top-performing products.
Additional Reading: Systematic Investment Plan Basics
Delaying investments because you can’t handle numbers? Relax! It’s normal. To be frank, there are many people out there who procrastinate investing because of their fear of numbers.
Number crunching may not be your cup of tea, but that should not stop you from investing and growing your money. You can always delegate the crunching part to someone trustworthy (like your financial planner).
We suggest that you chart out your financial goals and let your financial planner handle the rest. But, you have to make him/her do the calculations in front of you while explaining every step to you.
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Don’t Forget Your Plan B
A contingency fund is your friend in times of need. Most of us tend to ignore building a fund, but it is very important when it comes to securing your financial future. What if you suddenly lose your job or meet with an accident? Think about it.
Ideally, your emergency fund should help you cover up to six months of expenses with ease. Creating this safety net of funds guarantees your financial security, especially when faced with unforeseen circumstances.
Don’t Forget Inflation
Do not neglect inflation when investing. If your investment returns do not beat the inflation rate, then you are actually not building wealth. For example, if your investments are giving you a return of 10%, but the inflation rate is at 5%, your ‘real’ rate of return is just 5%. This is why, as an investor, it is important for you to understand inflation and how it influences your investments.
Additional Reading: How To Beat Inflation
See, it isn’t really very hard to secure your financial future. All you need is to do is get a better grip on your finances. Keep the aforementioned tips in mind and you’ll do just fine. Also, if you have any other tips, let us know in the comments section below.