Trust me, inculcating good money habits is no rocket science. Doing little things on a regular basis helps create wealth. Then, the financial plan automatically falls in place. Let's have a look at what these things are.
Write down your income and expenses
List all your incomes and expenses. Write down the expenses as mandatory and voluntary. After listing all the heads, make two columns against each expense: one for the expected expense, the other for the actual money spent. This way, you can compare the amounts and keep a track of your hard-earned money and accordingly cut down wherever necessary. Also, make it a habit to write down every rupee you spend every single day.
Be ready for emergencies
In order to be ready for any emergencies, here are two steps, which everyone needs to follow:First, prepare an emergency fund. Keep aside funds equivalent to three months mandatory expenses in the form of cash and fixed deposit so you are prepared for any untoward incident. Second, have insurance in place. This means life insurance for the earning member of the family and health insurance for all other members of the family. Remember to pay the health insurance premium on time, especially for members over 50 years of age. This is because once their policy lapses, getting a new policy for them is difficult.
Manage your debts
Debt may help you in buying that dream house or the car you desire, but if you go overboard, it can land you in trouble. Whenever you plan to borrow, first calculate the ratio of total annual debt payments to the total annual take-home pay.
The ratio should not be more than 45 per cent of your total take-home pay. If it is more, not only will you be in financial trouble, but your credit history in the market also will take a beating.
Read financial statements carefully
Reading your bills, statements and all your financial mail as soon as you receive it, is a habit that will serve you well.
Often, credit card statements bill the same item twice or banks charge you erroneously. If you do not read your statements in time, you won't be able to do anything about it and then it will take a lot of time and hassles to sort things out. The same goes with your bank statements, demat statements, and fund statements. Reading your financial documents helps you know what's going on with your finances and brings discrepancies to your notice while you can still get them rectified.
Systematically file financial statements
This way you will have track of all your financial dealings and can refer to them in case of any trouble or find them when you need them. Also update your financial records regularly rather than letting it pile up for the year end.
Complete bank work on time
Don't procrastinate your bank work. For example, if your cheque book is exhausted, make sure you have a new one before the last cheque is used. It generally takes 4 – 5 working days for the new cheque book to arrive. This way, if you have to make any immediate unexpected payment, then there is no need to panic. The same holds true for all other bank work. Also, keep your bank profile updated at all times so that your statements reach you in time.
Make timely payments
Never delay money-related transactions—be it credit card bills, any other bills or your mortgage payments. Delay means penalties and mind you, they are quite a bit.
Save in a disciplined manner
Everyone should have a piggy bank—not just children, but adults as well. However small the amount, save every day! With the money saved per month, you can start small savings like post office schemes where the minimum required amount is Rs 100. When you start saving larger amounts, start investing in different investment avenues.
Even if you can afford everything, there is no harm in being frugal. The extra 10 bucks saved on something add up and before you know, you are saving huge amounts. When planning to buy an expensive product do look out for deals. Due to increased competition, everyone offers deals. So why not save if you can?
Plan your retirement
The earlier you start, the faster you will reach your goal. The amount required to save for your dream corpus will be much less if you start saving at an early age.
Enemies of your money
There are some bad money habits that are to be strictly avoided. If you have them, now is the time to get rid of them.
Keeping outstanding balance on credit card
Pay off any outstanding balance on credit card at the earliest as it is the most expensive debt with interest coming to almost 36 per cent per annum.
Postponing saving to a later date
This is a very bad mantra because that later never comes.
Not maintaining a budget
No budget means you will have no clue as to where your money is going and how much of it is actually going. This way no matter how much you earn, it is never going to be enough.
Copying others' investment plans
Do not blindly invest where your neighbours or friends are investing—you might end up burning your fingers. Always invest depending upon your goals and the time frame in which you would like to achieve that goal, keeping in mind your risk appetite.
Purchasing on credit
Buy within your parameters or else you will not realise when these purchases add up to big amounts, which you won't be able to pay and will have to scramble for loans and more debt. Not only will you be caught in a vicious cycle, but will also end up spoiling your credit standing.
Often we complain about buying things we don't require. There is no harm in thinking twice before deciding on a purchase, especially if it involves a big-amount to avoid regretting it later.
Managing investments inefficiently
It's very important to keep a track of your investments. Even if investments are in good avenues, if they are not managed properly, you will not enjoy the desired returns.
Not planning for that rainy day
Bad times do not come with prior intimation and when they come, they are never alone. So plan in advance to avoid falling in deep trouble.
Keeping too many bank accounts
Having too many bank accounts leads to problems. It becomes difficult to keep track of all accounts and maintain their minimum balance. You may end up paying exorbitant penalties. Close all the extra bank accounts.
Borrowing against investments
This is not a good thing to follow as you are spoiling your future just to live in the present.
Make a checklist of the above items, see where you fall, and act wisely. It will help you have a financially stable and secured life.
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