Being smart with money doesn’t have to involve high-risk investments or having abundant money in the bank.
Most of us often talk about earning more money. However, what is more important is how to effectively manage our money in order to create a corpus. This is only when you will be smart with money. Being smart with money doesn’t have to involve high-risk investments or having abundant money in the bank.
According to Palka Arora Chopra – Senior Vice President, mastertrust – one can be more financially smart in everyday life irrespective of his or her present situation.
“You can start by building a budget to stay within your means and to prioritize your financial goals. Then, you can work on paying down your debt, building up your savings and making better purchasing decisions,” she added.
Here we share some tips that can help you in money-maiking decisions:
1. Pay Yourself First
Whenever you get your paycheck, the first thing which you should do is put a part of it away as savings for yourself. You can do this by creating a separate savings account or setting aside money in your parents’ account. A regular share of savings will be a huge amount over a period of time.
2. Setting Financial Goals
Money should be spent the right way. That’s why it’s important to set financial goals. Setting short-term, midterm and long-term financial goals is an important step toward becoming financially secure. If you aren’t working towards anything specific, you are likely to spend more than you should. Goals or financial milestones should also be your key focus areas.
3. Become Financially Literate
Making money is one thing, but saving it and making it grow is another. Financial management and investing are lifelong endeavors. Financial literacy involves being able to manage personal finances efficiently and make appropriate, educated decisions about your own personal finance. Some of the primary benefits of financial literacy include – developing better spending habits, learning the value of a savings account, being able to communicate more effectively about finances, making better financial decisions, etc.
4. Avoid High-Interest Debt
High-Interest led credit options such as cards and features, often lead to spending much more than usual, which may create a circle of bad debts eventually. Credit must be looked at from a long-term perspective and high-interest-available credit cards and schemes are often misleading and take more away from the investor, than the services they claim to provide.
5. Automate your Own Investments
Parting with your hard-earned money is hard – even if it is for their own good. This is why most people fail to invest regularly and inconsistent investments can often be the worst kinds of investments. You must look at investments as savings and future income.
6. Live within One’s Own Means
This is one of the biggest and most important rules of money management. You must keep one’s standard of living below what their earnings can accommodate. As one advances in their career and gains more experience, one’s pay should increase.
7. Save what one can for Retirement
In one’s 20s, retirement likely seems a lifetime away and planning for it may be the last thing on one’s mind. If the investor can take a few steps now to start saving, compounding will work in their favor.
8. Take Calculated Risks
Taking calculated risks at a young age can be a prudent decision in the long run. Even though one might make mistakes along the way, when young, they have more time to learn, execute and recover from every financial decision and mistake they make. So whether you are investing your money in stocks or looking at availing loans, assessing risks and benefits is important.
9. Always plan for emergencies and unforeseen events
When one faces something unexpected or experiences a big change like a marriage, divorce, baby or inheritance, it’s time to seek the advice of a financial expert. Many of these situations are emotional and stressful (even if it’s positive stress) and those feelings can cloud one’s judgement and make it hard to see a clear path. Setting up an emergency fund for these kinds of scenarios, is the best way to go about it.
10. Financial Goals – Short-term vs Long-term
Be very clear about why you should invest. This will save the investor from financial problems down the line. Goals can be short or long-term. Goals are also high or low-priority. Having this clarity will help investors divert their money to the right investment instruments to achieve their goals.