Raghav Ilag was earning a decent salary from his job. He was in his late 20s. So, he was not too worried about saving money. Nor did he stress about investing it for the future. He was good at his job. But his spending habits were not great. And they were getting worse. Things went fine for him until Raghav faced an emergency. All of a sudden, he needed a large sum of money at once. This made him realise that he had not planned his finances well. His friend Jagdish also had a surgery and bought a new home. It surprised Raghav that Jagdish was managing quite well despite all the expenses. Jagdish saw Raghav struggle. He offered to give his friend a few tips on how to manage his finances. By following these tips, Raghav would not have to fear an emergency again. Here are some of those tips:

1. Understand Your Income and Expenses:

What you earn may cover most of your expenses. But, you must have a clear understanding of how much you are earning. You must also figure out how much you can spend. Prepare a budget. Write down how much you might save every month. Categorise your spending and keep track of your budget. Put away some money for emergencies. You cannot take on expenses that you cannot afford. Look for ways to supplement your income. Make sure you are spending within your means.

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2. Save First, Spend Later:

It may be a good idea to splurge over the weekend with your friends sometimes. But, you should not spend beyond your means. Learn good saving habits. Do not tap the cash that you have saved for unnecessary expenses. Understand where your money is going. Frivolity may not help you reach your financial goals. Write down how much you need to save every month to reach these goals. Make it a point to keep that money safe. It is good to plan for the worst situation. Try to save at least 30% of your income.

3. Don’t Just Save; Invest It:

Saving is a good idea. But this alone may not help you achieve your goals. Investing can help you make money out of the interest you earn. You can then reach goals like owning a car. You could even go on a vacation in Europe. Choose from the various investment options on offer. These include mutual funds, fixed deposits, bonds, Public Provident Fund, and real estate. Invest money and diversify your investments. This can help you earn good returns later. Buy insurance to protect yourself from financial loss in case of emergencies.

4. Easy Investment Options

Make use of easy investment options, like FDs. Invest in an FD that can yield returns when you need to fulfil your financial goals. It could be funding higher education or a vacation abroad. You can also take advantage of tax deductions on FDs. To avail this, you may need to diversify them. FDs are a good way to start investing. You can earn guaranteed returns from them at attractive interest rates.

5. Be Ready for Emergencies

Have an emergency fund that you can tap in times of need. This is where FDs come into play. You can even take a loan against an FD in the case of an emergency. FDs offer a big advantage when you take a loan against them. You still earn an interest on the amount you deposited. But then the interest rate is much lower than in normal FDs. Even so, FDs are a great way to stay protected against financial loss.

6. Increase Investments with Time and Salary Hikes

Have you got a salary hike this year? That means you have more money to save. This is a good time to increase your investments. That way, you can meet higher financial goals. Resist the urge to spend more when you get a salary hike. Invest the extra money in various financial instruments. Diversify your investments. As the years pass, your financial goals may change. You must then adjust your savings and investments.

7. Use Bonuses to Pay Off Debts and Invest More

Make a list of all your debts. These could include credit cards, personal loans, or student loans. Focus on the debts that have the highest interest rates. Pay these off when you get bonuses. This way, you can avoid paying more money in the form of interest. Try to pay off loans that have variable interest rates. These could burden you with more debt than other loans. Pay smaller debts off first. Then move on to the bigger ones. This can keep you motivated.

In a nutshell:

FDs are a good way to keep your finances in order. They guarantee returns and you can dip into them for a loan during emergencies. You could also hire a professional adviser to help you plan your finances. But these tips did help Raghav. You could benefit from them, too.

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