To ensure a better financial future, resolve yourself to follow these simple money tips.
1. Analysing spending patterns
One should analyse spending patterns to observe how much is essential spends, and how much is luxury spends.
When there is a significant amount of personal debt, it is best to put off luxury purchases for later and stick to the essential expenses. This will leave more money at the end of the month.
Also, see if there are ways to reduce essential expenses, such as option for a car pool, or buying a cheaper brand of coffee.
2. Keeping a strict budget
It is advisable to create a budget, which takes into account current expenses, and helps you to keep money aside to repay debt. This budget needs to be realistic and take into account one's lifestyle and spending patterns.
Following a strict budget will assist you in achieving your financial goals.
3. Choose the time line
Fix a time line to achieve your goal, a long term investment always reaps you the benefit of your money compounding.
For example, let us assume you have a financial goal of reaching Rs 50 lakh as your target amount in 10 years. If rate of interest is 14 per cent, then you need to invest Rs 18,853 every month to reach your financial goal.
If on the other hand, the goal is to have a corpus of Rs. 50 lakh to be reached in 15 years with the same interest rate, then you need to invest only Rs 8,316 every month.
This is because of the power of compounding, so the earlier one starts investing, the better.
4. Credit card woes
Most people have multiple credit cards, leading to high interest costs and other charges. The best solution is to reduce the number of cards, to one or maybe two cards, which should be used only in emergency situations.
It is better to use a debit card for all shopping, as one can spend only within one's means and not overspend (as happens when using a credit card).
5. Prioritising goals
Without prioritising your financial goals it is impossible for you to achieve those goals. Once you decide your financial goals, it is advisable to prioritise them in order of importance, such as children's education, followed by buying a new car, etc.
One should then look at how much is required to achieve these goals and plan an investment strategy accordingly. This should be a realistic investment plan, with money being set aside each month for saving against the goals.
6. Set up investment plans
It is also important to start to save simultaneously, and the best way to do this is to automatically transfer funds from your salary account into some form of investment -- be it a recurring deposit, mutual fund, or fixed deposit. This will leave less temptation to spend, and will also help one build a nest egg for future contingencies.
7. Keep a contingency fund
Try to save money in a contingency fund. This money should be used only in the case of an emergency. For example, if one has been laid off and has to pay bills and rent, one can use the contingent fund money. This fund is will be maintained separately from savings, and should constitute at least 4-5 months' living expenses.
- Make a budget and analyse spending patterns to ensure no overspending happens
- Invest in mutual funds through Systematic Investment Plan (SIP) scheme.
- Reduce the number of credit cards and use a debit card for shopping
- Ensure you save some money each month
Illustration: Utam Ghosh/Rediff.com
Anil Rego is the founder and CEO of Right Horizons, an investment advisory and wealth management firm that focuses on providing financial solutions that are specific to customer needs.