However, imagine how much easier it would be to navigate life’s daily expenses and large purchases with a solid financial plan to help them avoid faulty investment choices, flawed portfolios, unmet goals, and financial insecurities. If you are just getting started in your career, or are resetting your finances, these tips can help you save money from your salary and improve your overall financial habits.
1. Make a budget
Start off by reconciling your income against your expenses and make sure to note your average monthly spending. The aim is to know how much you spend in various aspects of your life (i.e. utility bills, groceries, loans). After tracking your expenditures for a couple of months, you will begin to see your spending divided into three categories: essential, discretionary, and entertainment. This will help you to prioritize your expenses and create boundaries that you can commit to.
2. Chart out your financial goals
In addition to everyday expenses, think about your future savings goals and where you want to be financially. There is no wrong answer, but you will need to take a minute to consider your plans and how much money you will need to execute on each one. Split your goals into short-, medium- and long-term goals. Once these goals have been established, you will be able to determine how much money you will need to save and for how long it may take to reach that goal. Make sure to also factor in inflation while calculating this amount for greater accuracy.
3. Start investing early
The earlier that you are able to begin investing your money, the greater the returns you can accumulate over a long period of time. If you incur a loss, there is time to make up for the loss on investment. Ideally, you should aim to set aside about 30% of your take-home income to put toward investments if possible, half of which should be long-term investments that are accessible 20-30 years in the future.
4. Invest in SIPs
Investing in a systematic investment plan (SIP) allows you to invest a fixed amount into a mutual fund over time. You can opt for a monthly income plan or another frequency that works best for you. SIPs allow you to stagger your investment, rather than contributing a lump sum and rupee cost averaging ensures that you get better returns on your overall investment.
5. Plan your taxes
It is also important to maximize your investments to reduce your tax exposure. For example, an effective way to optimize benefits received via Section 80C of the Income Tax Act is to invest in the Equity Linked Savings Scheme (ELSS), which is a diversified equity fund. It has the shortest lock-in period, compared to all the other tax-saving options available under Section 80C. You can also invest in the Employee Provident Fund (EPF), Public Provident Fund (PPF), five-year tax saving fixed deposits, and ULIP plans to save tax under Section 80C.
6. Get your risks covered
Life is unpredictable making it difficult to protect yourself against every potential risk you may face. Purchasing an insurance policy – life and health in particular – can safeguard you and your family from severe financial consequences in the case of any unfortunate incident. Life insurance products that feature a combination of risk protection and savings elements can also be a great tool for long-term savings. In the case of an emergency hospitalization, the insurance policy covers in-patient and pharmacy bills, as well as funds to cover daily expenses while you are out of work. You can also avail tax benefits for insurance policies.
7. Save for your retirement
In a rapidly changing world, financial independence post retirement is critical. Even if retirement is decades away for you, it is prudent to plan and save for it right from the start of your career. The longer you wait, the more you will need to contribute to have enough money for the retirement you envision. To increase your return on investment, you can allocate a larger portion of your investment into equities directly, through mutual funds and the National Pension System. Investors with a higher risk appetite may consider alternate investments like Alternate Investment Funds (AIFs), gold, silver, commodities, or real estate investment trusts (REITs).
Even if your ability to invest is limited, small contributions can go a long way. Learning mindfulness as it relates to finances early will help reduce recurring money-related stresses and empower you to take charge of your financial future.
The aforesaid article presents the view of an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability or medical complications incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ health advisor before making any decision.
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