4 MUST HAVE FINANCIAL HABITS
Wealth creation and effective money management is an art that very few are able to crack. It is easy to discuss but difficult to implement. Probably that is why there are more advisors and less actually wealthy people!
So what is it that people do differently? When it comes to money, many people make very common but crucial mistakes that make all the difference in wealth creation and wealth destruction. These mistakes can prove to be expensive as they hurt the present and their financial futures if not corrected in time. Here are four good financial habits that must be incorporated into your life to improve your current financial status and secure your future.
Set a budget and stick to it!
Budgeting is an important habit that can positively impact your financial well-being. To make changes and ensure that you live within your means, use your budget to understand your expenses better. Distribute your expenses into regular and discretionary. As a thumb rule not more than 30% of your carry home should be spent on your living expenses and if you are spending more than this then you are killing your chances of saving anything. One must control the urge to spend beyond their means and make sure to pay credit card bills on time every month to maintain good credit.
Establish an emergency fund
Emergencies may strike without notice, as life is unpredictable. Therefore, you must build an adequately large emergency fund to be financially ready for crises. Generally, having an emergency fund equal to 3-6 months of your living expenses is a healthy option. This fund could be created in your bank through a sweep in FD or parked in liquid fund as per your convenience.
Start investing at a young age
As early as possible in your life, you must begin investing towards savings. Early in life can give you a significant advantage, particularly when pursuing long-term objectives such as building your retirement fund. The Saving habit should ideally begin with your career. As you progress in age and career, your incomes would go up but so would your expenses(with the expanding family). Starting early would ensure a good and healthy start point to a good investment corpus for the time when you would need it. Small regular amounts in SIP can create a substantial corpus through power of compounding over long term
Ensure you are adequately insured
Insurance is the key to securing your goals and the economic future of your loved ones in case of unforeseen circumstances. You'll need adequate life and health insurance coverage to confirm this.
Sound financial practices need time to develop, but they may become a way of life. You will gain substantial control over your economic well-being in the present and lay the groundwork for your financial future by developing positive money habits in your lifestyle.
Reduce your Tax out go
Tax takes away from your income and reduces the value of your investment. The incidence of tax is in two ways; one at the time of earning on income earned through salary, pension, rentals or professional income. The second incidence of tax is on the investment income. While we cannot do much about the taxation on the first outgo other than the mandatory tax savings, a lot can be done to reduce the second out go.Choose your investment plan after taking the impact of tax into account. Tax free or tax efficient investments are better than taxable ones. If at all you have to choose the taxable ones, choose ones which have the maximum post tax returns
Anupama Bhargava CFP
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