Do you remember owning a piggy bank when you were a child? Am sure we all have. It was such a simple way to save bit by bit or literally coin by coin for that dear gift we always longed for!
The idea behind evoking this memorable childhood habit is to emphasize that money is important and has been taught to us since we were kids.
Money is incredibly essential as it can provide protection and financial security to you and your loved ones. We require money to pay for all our necessities including housing, food, medical expenses, and quality education. You don’t necessarily need to be rich to pay for these things. You just need enough and with careful planning, even a small corpus initially can take care of your expenses all your life. Money gives you freedom, security, and the ability to pursue aspirations.
Even though money is important, very few feel comfortable talking about it. So, let’s break this social stigma and discuss a few important things about money that you should keep in mind before you start your investment journey.
- Exercise Self Control: Self Control is the key to saving money. Effective planning is required to have control over oneself. One should have a crystal clear picture of everything they should buy and what things can be ignored.
One should have a “no spend” day every week to avoid making unnecessary expenses out of impulsiveness and save money.
- Earnings must exceed expenses: One should keep the expenses to no more than one-third of the net income. People should start using the 30-day rule to reduce impulsive expenses. The 30-day rule is a concept where you hold on to expenses of the non-essential goods for 30 days. By doing so, a person will either buy if the product seems to be important after a period of 30 days or lose interest and emotion in buying the good which will eventually lead to saving large chunks of money.
- Save more by starting early: One should start saving and investing money at an early stage either in the stock market or in an interest-bearing account in order to have higher returns in the future. Thanks to the magic of compounding.
- It’s a good thing to diversify: One should not put all the money in a particular stock or a particular sector, rather focus on diversifying the portfolio to have a balance in case of greater losses in one segment.
Spreading your risk enables you to reduce the likelihood that the performance of a single investment will be reflected across your whole portfolio.
- Insure yourself against bad weather: It is always easy to go through the good times, what matters is how we handle the bad times. It is always advisable for everyone to take life insurance, health insurance, term insurance, etc. for oneself and family members to survive difficult times.
- Educate yourself: Avoid bad advice: It is always advisable to do in-depth research before making an investment. People often face several types of biases while making an investment decision. People often follow herd mentality or keep on investing in a particular stock that they are familiar with and might end up losing money.
- Budgeting: Track your spending: Budgeting focuses on saving, tracking, and reducing expenses. One should follow the 50-30-20 budget rule which involves spending 50% of income on needs, 30% of income on luxuries, and saving the remaining 20% for the future.
One should not only think of saving, rather one should satisfy their needs and also fulfill one’s wishes keeping the rule in mind. A flexible budget is considered to be more relevant and make the process easier during the transition to new phases of life
- Plan your retirement now: It is very important to plan early for post-retirement days to have a stress-free life ahead when there will be no source of income. The early a person starts investing and even with a small corpus, they would have enough to survive in the future.
If a person starts thinking of planning for retirement at the age of 50, it would be very difficult to generate enough income even with the investment of a large corpus.
- Avoid being a victim of Fraud: In order to protect oneself from fraud, one should be very vigilant. One should avoid taking random advice from friends and social media platforms, rather gather information and do in-depth research before investing. People can also reach out to the authorized registered investment advisory in order to make efficient investments with good returns.
- High rewards come with high risk: Risk and return go hand in hand. If a person wants to do a fixed deposit in a bank, there is low risk and low returns which is suitable for short-term savings. For long-term savings, one should be willing to invest in stocks with more risk and better returns.
- Establish an emergency fund and pay yourself first: Emergency funds are very essential for any unforeseen circumstances. The emergency funds should be liquid enough which allows quick access to money whenever required. One should pay a certain amount of money to oneself that can be used in case of any emergencies.
As the fixed deposits in banks do not give an interesting interest rate, the money for the emergency funds should be invested in a high-interest paying saving account, money market, etc. which allows the quick withdrawal of money.
Conclusion: Money is important and it is therefore imperative to understand how can money that you earn can better work for you in future. Knowing these simple and useful hacks can not only help in increasing the savings but also help reduce unnecessary expenses. Keep in mind that it is your responsibility to put your money to good use to create a better future.