It’s very easy to arrive at the consensus that earning money is hard. However, a crucial aspect that often gets overlooked by many is that maintaining and growing the money one earns is much harder.
With the myriad shiny spending options available all over coupled with a time pressed work life, what often gets missed is paying careful attention to maintaining stable finances.
Most people get carried away with spending their money impulsively. Many tend togamble majorlyin risky assets that hold only a probability to pay back good returns. However, people who are truly long-term players rarely fall short on securing their present and future financially in a balanced fashion.
Here are some simple tips you can followto maintain stable financial health:
Follow A Careful Budget
Even though this might sound like advice coming from your grandparents, it’s extremely important and deserves a focussed mention. Many people who’re earning well, tend to take it for granted that their income will continue to flow and grow in the same way. They feel maintaining a budget isn’t important unless one is under a financial emergency.
However, this ideology is completely flawed. It’s advisable under all circumstances to spend only after proper budgeting due to the high unpredictability characterof life. Many a time, even if everything is going well, inevitable circumstances may arise.Sudden situations could turn around everything against one’s favour. It’s important to be cushioned in case a scenario like this ever arises.
If your time doesn’t permit to work on budgeting on a regular, say fortnightly basis, you may do so on a monthly or quarterly frequency. However, this shouldn’t be avoided, because it ensures that you always have an idea of where your money is going.
Curtail Impulsive Spending
Impulse spending is undoubtedly one of the easiest ways to destroy your financial security for the future. Realistically speaking, the best time to save money for the future is always the present moment. Saving doesn’t imply restricting necessary expenditure, but mindfully spending on what’s needed and indulging only in a planned way.
Many people tend to over indulge in luxury expenses, going way over their budget. Theythink that if a financial emergency arises, they can easily guard themselves against a loan. This very habit has a negative implication on their financial health.
Spending wisely helps to build up savings that one can invest to grow their money. Moreover, if a financial emergency ever arises, careful spending habits ensure that you’re guarded because of the cushion you’ve built for yourself.
Avoid Unnecessary Debt
While loans help in having liquid money at one’sdisposal, their use has to be diligent.Availing loans on a regular basis can get you to fall into a debt circle. It can deplete a good amount of your earnings due to mounting interest payments.
Ideally, loans should be avoided to finance risky ventures or for to make big capital investments.
Maintain A Good Credit Score
Even if you’re someone who doesn’t usually take loans, it’s still advisable to exercise caution to maintain a good credit score. Avoiding late payments, cheque bounces or default of payments are important to improve your financial reputation andensure a good score of your credit worthiness.
If you ever face a situation where a need arises to avail funds in the form of a loan, having a good credit score makes it easier. In fact, it can also help you earn a bargain on your payable interest rate.
Invest Early & Safe
In order to enjoy a stable financial future, it’s imperative to start investing early. This is because when it comes to generating returns, early investments come with theadvantageof compounding.
One of the first few steps to the cause should be to secure a part of your income in safe financial assets that come with relatively low risk.
While it’s advisable to own a balanced portfolio, you must be careful to diversify risks at all times. This should be done to ensure that you don’t have a depleted bank balance if you ever need money and the market conditions are not in your favour.
Invest for Future Needs
Investing your savings as quickly as possible is the final step in ensuring a stable financial life. However, there are two things you must know before you can invest:
- A. What is your goal for investing?
- B. Where should you invest?
If you need to invest towards a financial goal, the amount you must invest now and where depends on how far that goal is from now. For example, for a goal which is more than ten years away, we can invest in Equity Mutual Funds or ULIPs. But if you need to accumulate some money within four to five years, better use savings plans with safer returns.
If your goal is to safeguard your current wealth, or when you want to preserve the returns from a high-risk asset, you need low risk savings plans.
Savings plans from insurance companies offer you capital safety and return slightly above inflation. Coupled with a tax exemption on investment and maturity, these savings plans protect your wealth from erosion due to inflation and tax.
Additionally, life insurance component ensures that the wealth is easily transferred to your dependents if anything untoward happens.