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Eight Ways to Be Smart with Money in Your 20s – Financial Guidance

The earlier one begins to save, the better one learns to manage their finances. In fact, it would be prudent to begin saving from your first job, or your first paid internship. Learning the importance of money management, of investments at a young age can go a long way in cementing your financial inclusion and freedom. Draw out a financial budget Even before you chalk out a financial budget, learn how to budget, learn what it means to have expenses and savings. It’s easy to want to splurge when you’ve just begun to earn because the joy of your first salary is unparalleled. However, try not to splurge every month – reserve that for special occasions. Revisit your budget every month to see where you can make cuts or allow yourself to spend a little more. Listen to financial experts Whether via blogs, podcasts, or videos – keep abreast of the latest developments in the financial markets. Reach out to seniors, family members and friends who’ve tasted success with their investments. Know that you don’t have to do any of this all by yourself. Save up for retirement Yes, you’ve only just entered the job market, and it may certainly feel odd to already begin to think about retirement, but it’s an important step for your own financial security. Adding a portion of your annual income to your PPF is a good start. Work towards building a good credit score A reliable and solid credit score can work wonders for your financial health. And maintaining a consistent score above 750 will ensure that your loans get approved, that you even earn a credit card – those borrowers deem you worthy of funds. Explore the stock market Again, it is advised that you reach out to financial experts, your accountant to get an idea of the shares that are doing well and worth investing in. At the same time, it’s easy to get addicted to and obsessed with stock market machinations. Be wary of that. Set short term and long-term financial goals: When you draw out your budget, you know how much you earn, your expenses, savings etc. But your income may well increase, and your investments may well bear fruit. Therefore, set attainable goals for yourself. Is it your first solo international trip? A degree abroad? A high end bicycle? Your first rental home? When you know you have to earn above a certain bracket to be able to realise your financial goals, your journey becomes easier. Get term insurance, health insurance: We live in post-COVID times, and a lot has changed in terms of how we see the world. Therefore, to ensure that you and your family and loved ones will be looked after, work towards getting a term insurance and health insurance, the latter to also be for your family members. Do this after a thorough research and making certain that you have enough money to cover the deductibles. Build an emergency fund: This is to be distinct from your retirement fund. The emergency fund should be touched when there is a genuine emergency, such as pertaining to health, or to bide some time if you’ve been laid off. You can decide how much to add to this fund as you progress in your career, but for those unforeseen circumstances, an emergency fund can be a blessing.

Finance

What is Debt Trap and Six Ways to Avoid Getting into it

‘Don’t bite off more than you can chew’ is something we’ve often heard. It is also something that few seem to follow. That people would like to access funds, and additional funds to meet their growing needs is understandable. However, that the same people should be wary of falling into a debt trap is paramount. We often take a personal loan to help bridge a financial gap, but if that loan itself becomes a cause for concern, it calls for some serious introspection. What is a Debt Trap? Simply out, a debt trap is when you begin to spend more than what you earn, resulting in a situation where the debt you owe spirals beyond your control. For instance, you’ve taken out a loan, but aren’t in a position to repay that loan. So you take out another loan to pay off the earlier loan, and keep repeating this pattern. A debt trap becomes a financial quagmire that can get extremely challenging to get out of. There could be several reasons that lead a person into a debt trap. Some of these are, losing your source of income or having to take a huge cut in your income, an unexpected exigency, poor budgeting, no savings, ignorance about spending. However, with smart financial planning and budgeting, one can learn how to avoid debt traps, and easier to get out of one. How to Come Out of a Debt Trap? Understand and analyse your financial situation It helps to do a financial introspection, identify your pain points, and come to terms with the reality that you’re in debt. Once you’ve accepted that you’re in debt, identify the areas where you’re spending more, and consider whether you can curb some of those expenses. Draw out a financial budget and stick to it. Invest in an emergency fund Know that it’s financially prudent and pertinent to have an emergency fund, to help you deal with your immediate debts. Adding a small portion of your income to this emergency fund can help you get out of a debt trap in an easier manner. Work towards adding enough funds to help meet you with at least six months’ of living expenses. It is also financially prudent to invest in Public Provident Fund, National Savings Certificate, bonds and equities, which may eventually help you clear out some of your debts, if not all. Lead a financially frugal life As an individual’s income increases, it’s only natural that they may want to spend more. However, try not to get carried away with your expenses. Alter your initial budget slightly, and save more – in bonds, equities, add to your emergency fund. Check your credit score on a regular basis to keep track of where you stand. If you note a fall in your score, take immediate steps to improve your score. Make timely payments on your EMIs and Credit Card bills Not only is it important to pay off your bills and EMIs on a timely basis, it is equally important that these payments are made in full. Part payments will only keep increasing your debt and interest, eventually leading to a vicious debt cycle. Timely payments also positively impact your credit score, which will eventually help you on the road to financial inclusion and independence. Consolidate your debts You may find yourself in a situation where you took multiple loans to meet your different requirements. And now you’re in a debt trap. A viable solution for this could be to consolidate your debts – debt consolidation is an important step towards your financial independence. Consider taking out one single loan to clear out your existing dues, bringing down your multiple loans to one. This single loan will be easier to manage and you’ll have just one interest rate to think about. Consider alternate sources of income Try to have a passive source of income, such as from any rental property. Keep track of any insurance policies, and whether any of them are about to mature in the coming months, as the income earned on these policies could help repay some of your debts. You could also consider taking up independent projects to supplement your income.

Finance

Personal Financial Planning: The Importance of Financial Habits

The Importance of Healthy Financial Habits Spend wisely, save smartly, and lead a long, wealthy life You earn enough to make ends meet. You pay your bills on time. You create a monthly budget and stick to it. You’ve saved up for a rainy day, and even have a retirement corpus up and running. Congratulations! You’re what one would call a prudent individual – one with healthy financial habits. We continue to live in uncertain times, with COVID still around, and the financial markets cautioning us each step of the way. When the chips are down, it always helps to know where your money is, how much longer your savings will sustain you, and how you can continue to lead a decent life. If you're new to financial planning, it's not too late. Adopt the following steps, and earn your way to financial freedom. Regular Updation of Financial Plans Personal financial planning won’t be all that successful if all you do is ‘plan’, but not review and update said plan. Monthly reviews and regular checks and balances in your financial plans will help you move closer towards your monetary goals. The market can see sudden shifts, your life could undergo a change that compels you to review where your finances stand. And this change could be something as routine as moving out of a rented flat, upgrading your home, or even a drop or increase in your earnings. A prudent person is one who tries to be as prepared for unforeseen circumstances as possible. Set Attainable Financial Goals When we draw up a budget, we know how much we’re earning, what our expenses are for the month, our savings, and so on. It helps to set small, attainable financial goals that will help increase our income. Never put all your eggs in one and the same basket. For instance, putting away the same amount of money in mutual funds alone may not suffice in accomplishing that financial goal you had set for yourself. Consider increasing the money in mutual funds and how the stock market works. When you begin earning a certain amount, consider investing in immovable property. Try and find out about passive sources of income. Are any of your policies about to mature in the coming months, and if yes, what can be done with that corpus amount? When you set small goals and work towards accomplishing them, you can set yourself up for bigger financial goals. Pay off Credit Card Bills On-Time Owning a credit card is seen as a marker of pride. It says to people that you’ve ‘arrived’ in the financial world. But one must be wary of credit card bills too. Owning a credit card does not wish away your expenses. Use any credit card smartly, and make your payments on a timely basis if you don’t want to pay higher interest or accrue more debt for non-payment. Keep a track of your credit score, and ensure it’s healthy, if you wish to qualify for higher loans in the future. Up-skill your Portfolio with New-age Investments It helps to keep abreast of the developments in the financial world and add or subtract from your portfolio. Learn how you can diversify your investments by maintaining a balance between equity and income based funds, as this will help you mitigate risks. Understand everything about peer-to-peer lending, and look towards such instruments for up-skilling yourself. Also, just because something is in vogue, don’t put your hard earned money there. For instance, it may not be a wise idea to invest heavily in cryptocurrency, so be cautious with what you invest and where. Know your Finance Experts Nobody knows everything about managing money, and that’s the best part because you don’t have to do everything on your own. Look to financial experts on different platforms – people who’ve burnt their fingers and now want to teach others how they can prevent mishaps in their financial journey. With the help of such finance experts, you’ll learn how to make the most of tax savings instruments such as housing loan rebates, PPF, etc. Your money is yours alone, and you’ve worked incredibly hard to earn it. Don’t let it just sit in a bank account. Make talking about Investments a Part of your Daily Conversation How often do you discuss the latest viral song with your friends? And about that new restaurant you’ve been meaning to visit that your sibling won’t stop raving about? These conversations are extremely common, but perhaps we need to up-skill even our talk. What’s a good investment portal? How many shares are good? Is it a good time to invest in real estate? The more often we make such dinner table conversations, the more we’ll learn about healthy financial habits and begin to implement them. Building and maintaining healthy financial habits are doable. All it takes is consistent effort. The first step towards cultivating healthy financial habits and achieving your financial goals is to understand the importance of financial planning. Hope this article helped you to gain some understanding of the financial habits and their importance. Let us know your thoughts in the comment section below or if you have any questions related to financial planning, post it here! – Our financial experts will be happy to answer them.