When one thinks of financial planning and budgeting, the commonest thought that comes to mind is imagining a life of frugality, self control, and one with a complete lack of enjoyment!
When given a chance to handle financial matters independently, the all too familiar reaction is to shy away. That is because most people are not financially savvy and they imagine this knowledge is limited to an esoteric few. Dealing with economic issues becomes a painful and daunting task. That is the number one reason for financial neglect.
But it is time to bust some myths. Though finance is complex, it is not all Greek and Latin. You can still work towards taking control of your money. Here are a few tips to help you start on a journey of financial health.
1. The Early Bird Catches the Worm: Start Early!
This simple and universal rule applies to finance too. The earlier you start building your nest egg, the more of it you will have later on. The impact of compound interest is profound.
* If you are single, don’t postpone investments till you get married.
* If you are married, don’t put savings on the back burner, waiting for a change in your job or the birth of your first child.
*If you already are a parent, don’t think it is too late to start saving. It is never too late!
* If you are a parent, teach your child earlier on about the importance of money management. You can lead by example. Show your child how to save part of the allowance. Open a bank account for them and let them handle transactions under your guidance. Get your children involved in your household budgets and financial discussions. Not only will they learn financial responsibility at a young age, they may also be willing to cut down on their spending when needed.
2. Slow and steady wins the race: Be consistent & stay at it!
Once you are committed to keeping aside a part of your income, stick to it. There will be hurdles on the way and sometimes the going may get tough, but remember a penny saved is a penny earned.
3. Expect the unexpected: Anticipate!
Expenses are always round the corner waiting to grab your savings. They could come in any form and under any guise. Whether they are expected ones like education expenses, marriages, or the unexpected ones like illnesses, hospitalizations, loss of job. The list is endless. The ploy is to be smart. Anticipate those financial hurdles and plan for them in advance. This will ensure that you will not have to dip into your long-term investments and savings to tide you over these lean times.
We will talk more on these in the coming articles.
4. Don’t miss the wood for the trees: Plan for both short term and long term!
Your investments and financial goals should embrace both your short-term requirements, as well as make provisions for your long-term ones.
Short-term requirements are generally the monthly expenses of running a household, which will include household grocery, housing & vehicle EMIs, electricity and phone payments, school fees, shopping, etc. Long term requirements will be planning for retirement, for children’s higher education, their marriages, and so on.
Since short-term expenses are ever present, we are always acutely aware of them. Making provisions to meet our monthly expenses and paying our yearly tax liabilities becomes of primary importance. We tend to put off the long-term financial planning to another day, maybe even to the next financial year. And sometimes long-term planning is forgotten altogether!
It is very important to have a financial plan that will make provisions for your long-term needs, especially life after retirement, as there may not be a regular monthly income to fall back on. When you make long-term investment plans, you should be mindful that inflation will eat away a major part of the returns. Work out suitable investment plans that even out these factors. You could also take the help of a financial planner who will be able to guide you appropriately.
It is refreshing to a CFP write an article in this tone with just one line about CFPs
‘You could also take the help of a financial planner who will be able to guide you appropriately.’
Many CFPs sells them selves as finance doctors and make it sound like doomsday if you don’t consult one. Refreshing indeed.
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