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6 ways to better your financial life in 2014
Smart management of your money can help you achieve your financial goals in the New Year
1. Build a contingency or emergency fund
We are living in extremely uncertain times and having a contingency fund is no longer an option but an absolute necessity. The meaning of an emergency is ‘serious and unexpected situation requiring immediate action’.
It could be a medical emergency, losing one’s job or losing one’s home in a calamity. The last thing that you want in such a situation is to be cash strapped. Hence it is prudent to set something aside for the rainy day. Anywhere between 4-6 months of your expenses should be set aside in safest and most liquid instruments, towards contingency.
2. Cover your risks
This step is very critical to ensure that you or your family is not in financial trouble if any risk were to materialise. Here we are talking about risk to life, health or property.
Loss or disability of the breadwinner of the family can leave the family in a dire situation. A medical illness can eat up into entire savings of the family. While such instances cannot be controlled in totality, one can at least be prepared to face the financial fallout of the event.
This is possible only if a person is adequately insured. Hence, ascertain your risks and cover the ones, which you know you would not be able to bear yourself.
The author is chief evangelist at Perfios.com and can be reached at adi@perfios.com.
6 ways to better your financial life in 2014
3. Save before you spend
Change your equation this year from ‘Income – Expenses = Savings’ to ‘Income – Savings = Expenses’. Saving is critical to secure your future and meet the important goals in your life. Your ability to save during your working years will determine the quality of your life in both your working and retirement years.
In order to know if and how much you can save, you first need to know how much you earn and more importantly how much you spend. If you think your expenses do not allow you to have any savings, cut back on a few discretionary expenses and try to save. Once you get into the habit of savings, you would notice that it becomes addictive and you like to save more as you see your money growing. If even you have to start small, the important thing is to start.
4. Say ‘NO’ to financial products you don't understand
Very often, you invest into insurance or investment products that you don't understand. This habit alone can cause a lot of damage to our financial future.
Don't get lured by promises of high returns and security. Unless you understand what the product is and how it can contribute to your overall financial picture, do not venture out to sign on the dotted line. This year, learn to say ‘NO’, even if it is a dear friend or a relative who is selling you what you don't need.
6 ways to better your financial life in 2014
5. Stay away from high cost debt
Running a credit card debt is not uncommon for many. Despite acknowledging the fact that interest charged on it is almost criminal, people keep using their credit cards to fund their expensive purchases.
If you are sitting with fixed deposits and paying a 30-36 per cent interest on credit card, it is foolhardy. Look for ways and means to nullify your credit card dues, even if it means you need to break some of your investments. Also, plan for big-ticket expenses in advance by using recurring deposits.
You would definitely enjoy your vacation more if you know that it doesn't burn a hole in your pocket.
6. Put down your financial goals in black and white
Whether we acknowledge them or not, we all have certain financial goals in our life. There may not be much of a choice when it comes to certain critical goals such as those relating to children or retirement, but there can also be certain aspirations or dreams, which we want to fulfill in our lifetime. There has to be a purpose behind all the hard work that goes into making money and this purpose is beyond the survival needs.
It is good to put down your goals in black and white and check if you are on the right track to achieve them. If you have not still done it, what better time than the start of the year to get on the right track.