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Managing Your Finances
July 02, 2013 by:
ushakiran Points: 12
The best way of dealing with your money is to use your income wisely and also manage your money on a realistic estimate of current trends and also future projections
It is not easy
Financial management is not an easy job at all, the more you have the tougher it is to manage your finances. I have seen people with pots of money and investments sitting with their Financial consultants trying to manage and balance out the earnings, taxes etc...and this can be an ongoing process !
The best way of dealing with your money is to use your income wisely and also manage your money on a realistic estimate of current trends and also future projections to build assets and wealth if possible. One should start early where money management is concerned because working life is relatively short and you have to make provisions for your later life while you are still young and fit and earning well.
As we all know, household incomes are generated through salary or self employment (and a lucky few may be living off their inheritance which is a very small number) . As a person nears retirement age, savings and passive earnings ( it may be from Bank FDs or rental) become important and necessary. So it is all the more essential to have a proper investment plan during your working years to lead a financially stable and comfortable life during your later years.
A few important aspects that need to be considered
1, Setting your budget - Budgets must be realistic and easy to stick to, otherwise chances are that you will quit before it actually takes off. Make an estimation, according to your current needs and living expenses. Keep track of what you spend daily for some months and calculate an average to determine your monthly expenditure. Keep a certain amount aside for special occasions and unforeseen expenses. A budget should ideally take every single expense that an individual has, including paying insurance premiums and holiday travel and vehicular expenditure.
2, Saving habit is a must - Mark out a percentage of your earning or income as savings, even if you are yet t decide as to how you want to invest it. Creating a savings fund is the first step towards any small time, short term or long term investment since saving is the base for any of your plans. Saving habit should be cultivated in children so that it is easier to save when they grow into adults since saving has become a habit with them.
3, Go for low risk investments and savings - There is a saying A bird in hand is better than two in bush , which means that there is no point in having something imaginary and farfetched and take risks to attain such a thing. While deposits in banks, post office saving schemes and other government institutions give low returns in short and long term, investment in retirement plans, insurance policies and quality equity shares can have long term - low risk returns. So make sure to plan your investment wisely.
4, Medium and certain high risk investments and how to handle them - Investment in share and currency market is very risky because of the volatility of the market . So, one has to be extremely cautious while investing in shares. If at all it is better to be a long term investor in shares instead of being a day trader which is full of risks.
Similarly mutual funds with open-ended schemes fetch high returns in short span of time but this should be done after getting some professional advice. The same is the case with shares. Unless one studies the share market and share movements in detail it is not possible to make any lucrative investments.
5, Diversify for Easy accessibility - Although we should put our money in high earning instruments, it is good to focus on safety and also accessibility- How quickly you can access your funds should you need it during an emergency. So you have to balance out and invest in different ways , so that you are not put into inconveniences or difficulties during an emergency. You need to have some liquid cash for emergencies .
6, Be moneywise by not being an impulsive spender - Most of us buy on impulse and realise later that we could very well do without the new addition. A little forethought and will power goes a long way in helping you reach your goal of saving and investing for a rainy day. So make sure to list out all essentials and shop only according to your list without buying anything extra. Since you already have some money allocated in your budget for additional and unforeseen expenses, you can splurge once in a while making use of it. But make sure that you do not exceed the amount.
Some Quick Money do's and don'ts
1,Don't put all your eggs in one basket - make investments in more than one kind and keep at least some ready cash in your account for unforeseen emergencies.
2, Property is an excellent segment to put your money in, especially for those families living on rented premises. Once you consider your budget, installments and down payments, convenience of location and facilities, you should try and invest in a property of yur own, which in the long term will be your biggest asset. Also take into account all details before buying a property so that you have resale value, should you need to dispose it.
3, Investment in Systematic income plans ( SIP) or monthly income plans in mutual funds is most likely to see good returns with low risks.
4, With the prices of gold and silver sky rocketing, (even if there is a temporary downward trend, the normal trend is for the prices to go up), it is better to be a bit slow on this since prices have already gone too high . It is better to buy when the prices come down considerably or buy in small quantities at every dip instead of investing in one go.
Money is a subject that has never ending possibilities and everything works when there is money and nothing works when there is no money . Stability and security in life comes not through earnings alone but through wise investments . So, it is essential to invest and let your money grow and this should be taught right from school days so that children automatically pick up the saving and investing habit when they begin to earn.
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