Talking about managing money and finances sounds daunting, but in reality, requires you to do just a little bit of homework. Money matters, especially those which relate to your personal finance, things like loans, investments, budgets, bank accounts, insurance and so on can get technical. However, if you apply some reasonable thought to these, the outcome can be an easy understanding of what you need to do and what you should avoid, to have a sound personal financial plan.
Let’s discuss the top four things that you can do to achieve success in understanding the financial aspects of your life.
1. Build Awareness
Information is all around us in today’s day and time. Use some of that basic information to understand money matters that can impact you.
First things first, everyone should learn how to operate a bank account.
In fact, if you haven’t equipped yourself with knowledge and experience around net banking then that’s the right place to start. Basic banking teaches one a lot about money and expectations around it. Plus, it’s simple enough. You can go to the website of any private bank in India and understand the costs and benefits of having a savings account, credit cards, loans and investments.
Building awareness about investments is the second most important aspect.
Investments are a way to make your money work hard for you. Putting your money to work means, earning more from an existing pool either in the form of interest or capital gains or dividends. Try to equip yourselves with the basic knowledge about these terms. How much interest do you earn in a fixed deposit? How does investing in equity assets help you grow money?
Lastly, learn about liabilities or loans. Anything that you spend, which doesn’t come from your bank account or you haven’t earned, is a liability or a loan. Other than the obvious car and housing loan, there are credit cards, bank overdrafts, deferred payment shopping and so on. If you are getting the benefit of paying later and using someone else’s funds for now, it will come at a cost.
Understand what costs are and whether you can afford them.
2. Practice Patience
Once you have built a basic awareness of different aspects of money, your savings, your loans and your investments, bring your focus to patience.
If you have never saved before and are just starting out, then have the patience to see your savings pile build up before you take it out to spend on a gift. Similarly, if you are investing in the equity markets for the first time, have the patience to see it through.
There is no get rich quick option out there without the risk that it will all fall through and leave you with financial damage. Learning how to manage finances with patience rather than chasing the quick buck and understanding how investing right can help you grow wealth requires time.
The biggest risk your money faces is that you will run out of patience.
3. Focus on Execution
Getting things done is perhaps the hardest aspect when it comes to managing your money. If you want a secure financial future for yourself and your family, you must first understand that you have to manage your savings and investments accordingly. Write down your monthly savings goals, your budgets, stop needless spending and then slowly move to investing. This requires that you go to the bank, invest in deposits or open a mutual fund folio to make market linked debt and equity investments. Most of this can be done online today. However, just reading about it is not enough, you need to execute. Automate that execution to whatever extent it’s possible and then relax.
If this seems a lot of work, then just do this one thing, get an advisor who will guide you through the process. Do it now, not tomorrow.
4. Use Common Sense
This sounds simple to do, but it isn’t always obvious. What is common sense? If someone comes to you saying that you must invest in this great plan and then they tell you that you have to undergo a medical test for this investment, do you think it’s just an investment? Unlikely, as no investment you make will require you to undertake a medical test. It’s probably an insurance cum investment, in which case you have to ask many more questions about why you need it. If someone promises you 15% return in a year, don’t just give them your money, ask how this return is generated. High return always comes with high risk. So, if they are promising you this high return when bank fixed deposits give 6%-7%, you are probably risking your money.
Common sense means not relying simply on what is told to you and asking some basic questions around investment options.
Whether you are working in an office or you stay home taking care of your family, understanding and managing money is important for you and the well-being of your family.
Unless you understand this, you will not be able to contribute gainfully to this aspect of your life.
The recent crisis has only underlined what experts have been saying all along, pay attention to your financial health.