2017 was an excellent year for investors with equities soaring, interest rates spiralling down and the economy finally coming out of the shadows of demonetisation and GST. Now, 2018 is here and it’s a fabulous time to sit down and think where your personal finances stand.
As for managing money, there will be many people to guide you and give you tips. Finally, what is important is whether you are implementing what you have learnt and if you have got a handle on your investment behaviour and spending habits. Also, when it comes to mastering money, you ought to consider many strategies and options, considering the risk-return rewards.
Here’s a functional guide on how you can master money in 2018 and get closer to achieving the goals of creating wealth.
Set a Goal – Short Term and Long Term
The first and foremost thing to do is set ambitions. Establishing specific goals will help you in a creating a vision and give you an understanding of the timeline in which you must achieve such goal. When you have a set of goals, it becomes easy to segregate your investments and establish a strategy.
Organize Yourself and Your Finances
You really don’t need to have multiple bank accounts to manage money for when it comes to financial paperwork and accounts, if your investments are not streamlined, you’d find yourself drowned in irrelevant work that would eventually take up a chunk of your time. Simply open up a current and a savings account and de-clutter all your paperwork.
Also get your bills in line. Restructure your bill due dates to somewhere around the third week of the month when your finances are stable and pay them off at once, so you don’t by chance miss any payments.
Create an Emergency Fund
You should ideally create an emergency fund that covers minimum up to six months of your living expenses. Say, you happen to lose your job, you won’t need a helping hand or to break your investment cycle midway to cover up the regular expenses when you have created such emergency fund. Park such funds in safe fixed return generating liquid instruments and let such fund grow on its own.
Start Identifying your Risk-Appetite and Create an Ideal Investment Portfolio
You have a vision and a timeline for your financial goals. All you need to do is to strategise, identify your risk-appetite and create an investment portfolio to generate optimum risk-reward ratio for your finances to grow over a period of time. Don’t shy away from equity markets as well. Although they are volatile in short term, the asset-class is one of the best wealth-generators when it comes to long-term. Use an expert advisor if needed.
Pay-Off Your High-Interest Bearing Credit Card Bills
Having revolving credit negatively impacts your credit score. Moreover, such debt carries a high rate of interest backtracking you from your financial goals. Pay off all your credit card bills at one go and streamline its usage. While it’s bad to have such bad debt, if utilised efficiently, credit cards give you an interest-free loan for a particular time period. So use it wisely.
Consolidating your debt considerably reduces your paperwork and helps you in restructuring your payments. While it won’t work for every type of debt, if consolidated, it can also help you reduce the amount of interest you pay over a period of time. Also, if your finances allow you, start pre-payments of your debt that will help you save a chunk on your interest expenses.
Get Yourself Insured
While you don’t expect a crisis in your life, you can never predict one. It’s better to stay insured for in case of such unlikely event, you’re financially secured with your insurance and also have secured your family’s financial future. You could also look at a term insurance if you have dependents.
Be it grocery shopping, cosmetics, clothes shopping, home services, or even healthcare and diagnostics, there are multiple companies offering bargain deals. Besides, there are several cashback and coupon websites like Cashkaro and Coupondunia who list such offers. So, before you swipe your credit card, search online for any bargain deal available.
Educate Yourself Financially
Financial illiteracy is one of the root causes of people facing financial problems. A few companies benefit out of such ignorance and transfer money from your pockets to theirs. Spend at least two hours a day to educate yourself financially. Read a book, read a website like the one you are reading currently, or attend seminars. Learning how to handle your money effectively and understanding financial topics such as wealth creation, debt reduction, investments, asset-classes and so on will leave you better off than you were, financially.
Don’t Live Beyond Your Means
Remember the times when you spent money for your wife or children out of guilt and later felt that it was a bad choice? Or rather, do you buy things that you can’t afford but it’s simply to make you feel better? Well if you are, it’s a bad decision that will surely impact your financial stability. Rather than ‘emotional spending’ and ‘impulse buying decisions’, identify your propensity to spend and wait for a day or two before making such purchase decision. Spending is important but it should not be at the expense of living beyond your means.
Keep Your Credit Score in Check
Credit information companies like CIBIL and Experian maintain credit records of millions of individuals and give a score to individuals based on their credit history. The higher your score, the higher is the ability to get easy approvals and lower interest rates on loans. It’s important to maintain a high credit score for it can help you in your bigger financial goals such as owning a home down the road.
Last but not the least, if you want to speed-up your personal finances, considering a source for side income is a very good idea. While you can always ask for a raise at the job, your additional income stream from a side hustle can help you pay off your debts quickly or achieve your short-term goals at an early stage. Who knows, this side job can make you a master, leading you to quit your job, making you your own boss breaking that glass ceiling.