Financial management is among the most critical skills one can learn. Read about clever ways to save money and make it work for you.
The idea of adulting motivated us to get good scores, get into a good university and finally get our dream job. Little did we know that we were going to be on our own!
Nobody can guide us all the time or help us through the process, especially managing the money we always wanted to earn. Suddenly everyone's talking about intelligent investments, mutual funds, insurance, etc. It can get overwhelming taking reins on all the financial aspects of your life, leaving you confused or stressed.
Good news? It doesn't have to be like this all your life. On the contrary, with the proper guidance, you can make it simpler and reward yourself with good returns and a secure future!
We've done some homework around this and have compiled these 6 things; knowing which and sticking by them can help you enjoy the journey of adulting the right way!
Start your saving journey early
Remember the formula to calculate the compound interest on a principal amount that was taught in our schools? Well, now it's time to use it in the real world!
Now, many of us have only realized the power of compound interest when we've become serious about savings.
Basically, with the help of compound interest you're making your money work for you. The longer you invest your money, the more interest you incur on it. Know more about how this method works best for your financial journey in this blog.
But, before you chip in a chunk of your money in the aspect of growing your money, it’s better to take a raincheck first. Try to take a closer look at your salary, understand how much can be saved and invested from it and how much you absolutely require to spend for yourself.
It might not be very comforting to live by a rulebook, but budgeting your expenses is the first step to smartly saving your money. Which brings us to our second point -
Make a budget and stick to it!
This one might be hard to follow, but like any other habit, you will eventually stick to it. We're constantly exposed to advertisements in different ways that can lure us into purchasing items impulsively. A budget, in this scenario, can help us deter impromptu purchases and keep our finances in check.
So, how should you create a budget that works for you? Divide your expenses into wants and needs. Your needs will take precedence over your wants. Your needs will include the rent, bills, and other requirements. However low or high your income may be, try to save at least 20%.
Anything more than that will only work in your favor. Most of your income will go into your needs, about 45-50%. You can keep the rest of the money tucked in for your wants. If you can control yourself from spending this, you can add this amount over and above to the 20% you've kept aside for your savings.
Now comes the more challenging expenses: impulsive purchases. Again, this is relative, so carefully decide if the purchase is worth it or not. As tempting as it can be to splurge on a dress or even a smartphone, do it only if there is truly a need for it.
Make sure you control your spending patterns and never lose sight of it. Reflect on your expenses and ensure your wants do not become your needs.
Debts can be sneaky, so be aware
You will come across enticing offers that offer the best EMI plans with no interest. What could you lose, right? Just a few thousand every month to own something you've always wanted. But be aware of the situation you get yourself into.
Taking a loan to study is wise because you are investing in something that promises you good returns. But buying a luxury car at the age of 25 out of a strenuous car loan is not. You are putting yourself in a situation that doesn't allow you to grow financially. This brings us back to reflecting on how we spend our money.
Use debit cards more than credit cards to keep track of your expenses. If you want to use credit cards, make sure to pay your bills every month to avoid paying the extra interest. Using debit cards makes you feel the pinch, making you think twice before spending your money.
Be practical and invest in a health insurance
You might start your journey of adulting in your early 20s when you're healthy and do not need to worry about getting health insurance. Over-the-counter medicines work just fine to treat your health problems.
However, we tend to forget that this is also the best time to invest in health insurance to get maximum coverage for the future when we're older. Split the 20% of your savings and keep a small amount for your health insurance.
Life is unpredictable, so it's better to be prepared. Whether it's a single or family plan, do your research and get a plan that works best for you.
Be prepared for the worst
Apart from investing in health insurance, there is another unpredictability we must be aware of: an emergency. Be it losing a job, higher studies, or even a down payment for your dream home, it is essential you have an emergency fund. This can be 10% of the money you set aside for your savings.
Most importantly, this money should be accessible in case of an emergency. Hence, choosing a savings account or an investment plan that can give you liquid cash at the earliest is the best way to pool in money. Do not compromise on this part of your savings, as it will make your life much easier.
Additionally, suppose you develop the practice of routinely setting money aside for yourself. In that case, you will stop thinking of saving as an option and instead start thinking of it as a necessary monthly investment.
Soon enough, you'll have saved for vacations, down payment for your first home or even a good sum for your retirement plans, in addition to emergency funds.
Make yourself aware
Understanding everything said above will help you determine what is ideal for your needs, your salary, and the future you want. Get assistance if you feel overwhelmed by the volume of information you are receiving.
Financial consultants are on hand to assist you with choosing the correct health insurance, choosing the funds that work for you based on your income, and filing your taxes.
Don't hesitate to invest some time learning about or at least finding an advisor who can assist you through it because financial planning is the most significant and crucial step to take once you begin working.
It has been shown that financial conduct, rather than financial education, accounts for most personal finance. You can alter your financial future if you can alter your attitude concerning your finances.
Contrary to common misconception, anyone can start saving for retirement or making emergency plans. You don't need to be an expert on the stock market. All you actually must do is put time into developing a suitable project and deciding to follow it.