1. Keep track of your expenses
It is important to keep track of the smallest expenses. Even if you are busy and do not see the benefit of this exercise, you must never avoid it. Knowing how and where the money is being spent is the first step in planning your finances. Consistently tracking your expenses will help you identify where you may cut-down and start saving more.
2. Build an emergency fund
Traditionally, experts recommended an emergency fund to meet at least six months of expenses in case you lose your job. However, difficult economic conditions may mean living without a job for as many as nine months. You must create an emergency fund in an instrument that offers liquidity without levying any penalty. You may opt for a high-interest savings account or invest in money market instruments.
3. Avoid debt
Credit cards are convenient but when not used responsibly may result in severe financial crises. When you make a late payment or pay only the minimum bill amount, the interest costs are very high. In addition, other loans may increase your monthly installment burden. Determining your debt-income ratio is very important.
4. Opt for life insurance
You may have no dependents and may consider life insurance is not required. However, if you pass away, your family would have to pay off auto or home loans, tax liabilities, and other debts. If you are a single mother, higher life insurance coverage is of the utmost importance to ensure your child's security.
5. Plan for your retirement
When retirement is several years away, you may easily delay financial planning. However, starting early is crucial to ensure you achieve financial freedom during your retirement years. Saving for these years is crucial and must not be overlooked.
There are different types of financial instruments you may choose to invest your money. Below are some available options:
1. Pension schemes
If you are young, you may open a public provident fund (PPF) or National Pension System (NPS) account. These are low-cost, secure, and tax-efficient pension schemesthat help to build a corpus.
2. Term insurance
This is an affordable way to avail higher life cover to secure your family's financial future. If you pass away, a lump sum is paid to your beneficiaries ensuring they are able to sustain their lifestyle in your absence.
3. Mutual funds
If you want to benefit from higher returns offered by stock markets but reduce your risk, it is recommended that you invest in mutual funds. You may also opt for debt funds or balanced funds to earn decent returns on your investments.
4. Gold and related products
Gold investing has been popular in India for decades. Today, you may invest in gold in many ways apart from physical holdings. You may choose gold traded funds, deposit schemes, or mutual funds.
Saving is important to ensure financial stability. However, savings alone will not help you build wealth. Investing wisely in different products that allow your money to grow is equally important
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"The thumb rule for retirement planning is - the earlier you start, the more you save. However, with age, your priorities change too. So, you need to factor in the cost of living in the present vis- a -vis future."
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