How to Plan Your Finances Better
Amar Sinha, a 45-year-old businessman, was struggling to make ends meet. A decade ago, he would splurge without a second thought. But with business setbacks taking a toll on his finances in the last few years, he was now having to think twice even before spending. Most of his income would be spent for household expenses and his children’s fees. Amar regretted not planning his finances well.
You can avoid such a situation by paying heed to these financial planning tips:
1. Start Early:
When you are young, your responsibilities are fewer. You also have enough time to rectify your mistakes. You are more capable of taking risks. So, you can invest in instruments like equity-linked mutual funds. These are risky but they also fetch you high returns. Starting early also helps you reap the benefits of the power of compounding. You earn interest on the amount that you invest. You can make more money if you keep on reinvesting.
2. Analyse Your Situation:
Before you invest, develop a thorough understanding of your income and expenses. This is because your savings and investments depend on your current income. For example, you cannot opt for a recurring deposit if you do not have a steady income. Knowing your disposable income is the first step in saving and investing.
3. Set Your Financial Goals
Goals give you a clear direction. They help you decide your choice of investment. Say, you want to save for an event five years down the line. You can invest in a tax-saving fixed deposit (FD). You will earn interest and get a higher sum at the end of the tenure. You will also get tax benefits if you invest in FDs. Financial goals also give a boost to your savings.
4. Build A Safety Net:
Financial planning is an ongoing process. You need to take slow and steady steps. Your first investment should focus on financial security for you and your family. You can do this by purchasing life or health insurance.
5. Build an Emergency Fund:
There are times when even an insurance plan cannot help you. For example, your company becomes insolvent and you lose your job. This will make it difficult for you to look after your family and their needs. So, it is advisable to have an emergency fund to deal with such hardships.
6. Grow Your Wealth:
After you make enough financial provisions, focus on growing your wealth. There are many investment options that help you maximise your wealth. For example, you can invest in an equity-linked savings scheme (ELSS). Such instruments have a good potential for generating high returns. They also provide tax benefits.
7. Save For the Future:
Both short-term and long-term financial goals are important. Systematic spending habits today are better than living hand to mouth in the future. Investments help you save. For example, you can open an FD account. FDs encourage savings since they have a fixed tenure.
Financial planning is not difficult. Here are some thumb rules you could keep in mind.
The bottom line:
Understand your situation, stick to your goals, and invest in a wise way. This ensures your safety and helps you grow your funds. Check out investment options with non-banking financial companies (NBFCs) such as Bajaj Finserv that offer you a plethora of investment options to plan your expenses and meet your financial objectives.