People are losing sleep over their debts! But you don’t need to. Here are a few simple ways to attain freedom from all your financial woes.
In this day and age, stressing over the state of one’s finances has become so commonplace, to the point of almost turning into a well-worn conversational cliché. While we may nervously joke about it from time to time, the impact of financial stress on one’s physical and mental health is pretty alarming. From anxiety and social detachment to insomnia and suicide, financial stress is taking control of the lives of those affected.
Do you often feel enslaved by money issues? Well, it could be because you haven’t been managing your money well. Money problems have often been cited as being the sole reason for one’s failing mental and physical health, especially for those who don’t have a firm grip on their finances.
Most people today are working themselves to the bone to earn money and build their wealth. Despite this, most of them aren’t able to save enough money to support themselves throughout their lives. Sad, isn’t it? Well, the reason for this is because they haven’t planned their finances properly.
Additional Reading: 8 Surprisingly Simple Reasons Your Money Isn’t Growing
However, if you manage your money well, then you might actually find yourself worry-free and at peace. You will find freedom in its truest sense. This World Mental Health Day, we’ve decided to help you give yourself a chance to break free from the mental distress caused by your finances. All you’ve got to do is take the below steps seriously to gain mental peace from all your money woes. Try them and let us know if they worked for you.
Differentiate between wants and needs
If you are aiming for financial independence, one of the first steps is to attain freedom from your wants. You need to draw a clear line between your wants and needs. Similarly to you segregate wet waste from dry waste to make recycling and composting easy, you need to differentiate between your wants and needs to simplify your finances.
Prioritise saving over spending
If you have just started working, make sure that you give importance to saving rather than spending right from day one. Draw up a savings plan for each month. Most financial planners will recommend that you save at least 30% to 40% of your income. But even if you manage to save 20% to 25%, it is still a good start. Once you have put away your savings, try and restrict your expenses and limit them within the remaining amount. Simple, right?
Here are some quick saving tips:
- Designate specific savings for each of your financial goals
- As your income increases, ensure that you increase your savings accordingly
- Don’t dip into your savings if you are out of money. Use your Credit Card instead. But make sure you pay your dues in full before the next billing period so you don’t end up paying interest
Prepare for unexpected expenses
Even if you have the perfect plan for your finances, if you haven’t considered unexpected expenses, your plan might fail. However, you can avoid getting derailed from your financial goals by preparing for such emergencies well in advance.
Here are some quick tips to plan for unexpected expenses:
- Set up a contingency fund. This fund should be able to cover at least six months of your expenses
- Buy a comprehensive life cover for yourself, at least equivalent to five to six times your annual income
- Ensure that your entire family is protected with an adequate Health Insurance cover
- Invest in an accidental and disability rider (at least Rs. 20 to 25 lakhs cover)
Additional Reading: How To Build An Emergency Fund
Decide what your financial goals are
You are going to be concerned about returns when you invest in any investment product. And you have all the right to be concerned since you’re investing your hard-earned money. But, it is not just the returns that matter. It’s important to set up some financial goals for yourself. For example, saving up for the down payment on a Home Loan or saving up for a vacation. What your goals are is entirely up to you. What’s important is that you have goals and are investing to achieve them.
You wouldn’t want to keep your financial goals hanging because of your over-ambitious decisions, would you?
Here are some quick tips to invest based on your goals:
- Aim to build a diversified portfolio with proper asset allocation
- Steer clear from chasing extraordinary returns
- Choose your assets based on your goals and their time horizon
- Review your portfolio annually. Re-balance it, if needed
Additional Reading: Term Of The Week: Asset Allocation
Get rid of your debts
With many options to borrow money easily available, a lot of people have started spending recklessly without worrying about how they are going to repay all the borrowed money. Credit Cards are easily available and Personal Loans get quick approvals. While this is good if you find yourself in a financial crisis, it’s equally important to use these financial tools wisely.
Reckless spending will lead to huge debts that you will eventually have to pay. Don’t forget that! Any wise person will tell you to keep your debts to a bare minimum if you want to become financially independent. If you don’t want to be enslaved to your debts, then here are some quick tips:
- Segregate between your wants and needs
- Don’t use your Credit Card or take a Personal Loan for frivolous things
- Your monthly EMIs should not be more than 50% of your monthly income
- Pay your Credit Card bills and loans regularly and on time. No delays, please!
Stay away from fraudulent investment schemes
Yes, stay away from dubious schemes that promise high returns. Before you invest in a scheme, do your research, evaluate the scheme and check if it adheres to your risk appetite. Here are a few tips to help you out:
- Don’t fall prey to offers that promise extraordinary returns
- Before purchasing any investment product (Mutual Fund, insurance policies, etc.), understand their features clearly.
- Get-rich-quick schemes spell trouble. There is no way you are going to get rich overnight, except if you win a lottery or inherit your family’s wealth.
- While making online transactions, stick to encrypted websites. Better safe than sorry!
Additional Reading: 10 Smart Ways to Avoid Credit Card Frauds
It isn’t very hard to be free from your financial woes. You just need to practise good financial habits. Well-managed money will guarantee you peace of mind. Good luck!