Take control of your finances with these three steps

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You are in your mid-twenties, and your salary just got credited. You are feeling more stressed than happy. The number of self-proclaimed financial advisors on the internet is increasing by the minute, and the other set of people who have no clue about financial management is freaking out more and more. Sounds familiar?

It is human nature to complicate simple things, and financial literacy is one of those things. Also, money has been a taboo topic for so long that people often have a hard time opening up to anyone about it.

But worry not, everything can be learned with the proper guidance, and this article is exactly what you need to get a hold of your finances in three simple ways.

Read on!

Step 1: Record your income and expenses.

If you are someone who dreads checking their bank account just because you fear the amount might be far lower than what you expect, well, the time to check it now!

The first and major source of your financial journey begins with your total income. Keeping track of your income is crucial because when you keep a check on how much comes in, you can also keep a check on how much goes out. In order to move in a positive direction with your financial journey, it is essential to be conscious about your financial goals, starting with your income itself. 

You start respecting your income and handling the same with caution when you have those numbers in mind. Trust us, this will be a total game-changer, especially if you are someone with a variable income or have multiple streams of income. 

And by keeping a check on income, we mean that one must keep a check on the amount and the source from where it’s received. You can use a simple Excel sheet or pre-designed budgeting planners to record your income. Download a free budget tracker here. 

Now, to make this even better, it is advisable to have a separate checking account and a savings account. Once you start keeping tabs on your income, it will be easier for you to understand how much amount you can blindly transfer to your savings account without having to touch it for a long, long time. 

Make it a habit to save a specific amount every month based on the income you make. Having this habit will make sure that you are in a financially better place with every passing month. The best way to make consistent contributions to your savings account is to decide on a percentage of the income you can feasibly put away every month. 

Of course, keeping a record of your expenses would be the next step. To be very precise, we suggest keeping track of where and how you choose to spend your money. Usually, this is the step where it all goes haywire for people.

Spending money is a coping mechanism for many people, and it leads us closer to bankruptcy, with each penny spent mindlessly. Make a list of all your monthly bills and recurring expenses. Alongside, also add your extra expenses. Do not miss out on them. Some people have a habit of hiding their own expenses from themselves. You don’t have to hide it; you have to accept the fact that it is an expense. 

Get an idea about any leaky buckets you’re draining your money into, and plug it in as soon as possible. Are you spending too much money on groceries? Stick to a meal plan and only buy the things you need. Were you going out too much? Keep track of these bills for a month and see how much you could save up if you hadn’t gone out impulsively.

Now, you can keep track of both your income and expenses by looking at your bank account statement. You can also maintain a budget planner or expense tracker for the same.

Step 2: Set achievable financial goals

All of us desire certain things in life, no matter what. Some might want their own car; some might want a house. Whatever it is, convert that goal into an amount and call it your financial goal. Now, to achieve this goal, you also need to have an action plan. 

Say you wish to purchase a car worth 5,00,000 INR by the time you turn 25. You have an amount, a timeline, and a goal attached to it. You could keep a margin of 40-50k INR for price fluctuations. Now, get an idea about how much this car costs in terms of maintenance. 

Make small efforts to increase your income and save up for the purchase. These small efforts will add up to the amount you need and will also help you be responsible with money. That will also be a financial goal for you to achieve, but on a recurring basis, since a car needs maintenance regularly.

These financial goals need not be in terms of purchases. You can also have a goal of saving up a certain amount or investing a certain amount. Either way, the point here is to be in control of your money, to stop being controlled by it, and take charge in your hands. It does not have to be scary or confusing. Neither do you need to think any less of yourself for sitting and making a financial plan that fits your budget. 

Budgeting is not a tool for only the poor. Everyone needs goal setting and budgeting to save a large sum of money. It limits overspending and helps you be aware of the whereabouts of your money.

Now, budgeting also means auditing your expenses on monthly or annual subscriptions such as the gym, magazine or streaming services, etc., and getting rid of the ones you don’t actually use. This will help you save a good amount every month and put it towards your investments. Building wealth involves a lot of saving, no matter what other people say.

Step 3: Invest wisely

Now that you’ve gotten hold of income, expenses, and budgeting, it’s time to learn to invest. Personal finance is not something you learn at school, and that’s why most people invest their money in bizarre forms. Here are a few simple tips for investing smartly and wisely in wealth-building.

  1. Invest as soon as you can. The amount doesn’t matter in the beginning, habit-forming and understanding the investments do.
  2. Make rules that suit you, but stick to them no matter what.
  3. Start building an emergency fund with at least six months’ worth of expenses.
  4. Make sure you use every tax-advantaged route to make the best of your money
  5. Always invest in the long-game
  6. If you’re a beginner, start automating your investments.

These were just the tips; we want a plan too! Yes, absolutely true! We also need a plan, and we will teach you how to make one for yourself. Follow the plan mentioned below to personalize an investment plan for yourself.

  1. Check your finances. Savings, expenses, everything.
  2. Set goals. Income goals, investment goals, and all financial goals in short.
  3. Understand your investment options, the income they yield, and the risk they carry.
  4. Start building a diverse portfolio, one investment at a time.
  5. Monitor each investment.
  6. Keep learning more about investments and apply the knowledge

This plan might sound super simple to you right now, but it takes a lot of thinking, understanding, and calculating to put together an investment strategy. One has to consider the returns, safety, the period of investment, etc. Mindset is yet another thing you need to work on.

Here’s a list of books to help you change your financial mindset altogether. If you’re not a fan of reading, you can do your research and pick a financial coach. If not, you can also go with audio and video resources for the same. There are plenty of podcasts and YouTube videos to cover each point when it comes to a financial mindset. 

Coming back to the investment options, there are two fundamental investment options: Financial and non-financial assets. Financial assets can further be classified into fixed-income products (Fixed deposit, PPF, etc.) and market-linked products (Stocks and mutual funds).

Non-financial assets are mainly precious metals and real estate. “Non-financial assets” is a vague term if you define it by what it includes as its options. Moving on, here’s the much-awaited list of investment options you can explore as an investor.

  1. Direct equity: A little risky, but totally worth it. Investing in stocks demands that one understand the way stocks work first. Picking the right stocks and choosing the right amount of time to stick to the investment is very crucial here. If you are a beginner, apps such as Varsity by Zerodha, Groww, etc. might help you get an understanding of the market, trading, and investments. 
  2. Mutual funds: A mutual fund is a corporation that collects money from you, i.e. the investor, and invests it in bonds, short-term loans, and stocks. The portfolio of a mutual fund is made up of all the fund’s holdings. Mutual funds are purchased by investors. There are several kinds of mutual funds; debt mutual funds, equity mutual funds, etc. to name a few. Based on the investment portfolio of the mutual fund, it is classified as one of these classes.
  3. Public provident fund: Because PPFs have a 15-year term, tax-free interest compounding has a significant impact, especially in the last few years of the tenure. It is also a safe investment of the government guarantee of your money.
  4. Fixed deposit: Chosen by many, avoided by many, FD remains a conflicted investment option despite how safe it is. A Fixed Deposit keeps your money for a fixed amount of time before returning the same with the extra sum of interest you’ve earned over time. The duration of a fixed deposit could be variable. 
  5. Real estate: Tricky and high-risk. This investment option requires experience and a deep understanding of real estate. It also needs a larger sum of money as compared to any of the above-mentioned options.
  6. Precious metals: Gold is the most common option nowadays, but you can go with other precious metals such as silver, platinum, etc. It involves a certain amount of risk as to where one could store the gold, or extra expenses such as making charges (can go up to 25% in some cases). You can avoid making charges by investing in gold coins or bricks. And if you want to make your investment even safer while also starting with a smaller amount, paper gold or Sovereign bonds are the way to go.
  7. Pension schemes, SCSS and PMVVY: These are investment options for senior citizens. 

These are three simple steps to get your finances in order. Remember, it is never too late to start investing or saving your money. Your control over your finances is the key to avoiding years and years of overworking and debt. Choose your path wisely. Happy investing!

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