Do you want to start taking control of your money life, but have no idea how and where to begin? As they say, most new beginnings should be simple and the start of a change in your money life should be no different.
I recall, nearly two decades ago when I started working, it was a big shift in my money life; moving from being dependent to independent was also a shift in mindset. For me to get the right tick marks in my money life though, took a while. I spent all of what I earned, saved nothing and every now and then went back to my parents to ask for some more, till the next salary came.
If there is any regret I have, it’s that I learnt my money lessons a tad later than I would have liked to.
The first basic step in your money life, if you’re unsure of where to begin is a simple one; save first. Saving, investing, budgeting and not borrowing, are the essential tick marks that can help you throughout your money life, no matter what your age or phase in life might be.
1. Save first
This seems intuitive, but often hard to implement, especially at the start. Nevertheless, the sooner you begin a good saving habit, the more beneficial it can be to your money life. In traditional terms, saving means – spending less than you earn in a month. Or in other words, having some surplus leftover in your bank each month. If you are struggling to generate this surplus, it means you need to cut down your spending in some parts. More than that, saving money in your bank account which is easily accessible might be counterproductive.
Thanks to technology, you can now save and shift the savings immediately to either another account which you will be less likely to withdraw from or if the savings are meant for some specific purpose then to an investment account which will help you achieve that money goal.
Don’t leave your savings idle in your bank account or in your piggy bank at home. First, separate it out from your main bank account and then think about where you can store this money to make it work for you at a time when you might need it more.
2. Invest early
This is what will flow naturally from your saving effort. Again thanks to technology you can invest amounts as small as Rs 500 and no longer need to build up a substantial amount in savings before you put your money to work. Before you invest, think through what you want to do with this money in the future. Make a list of these goals and then prioritise them in order of preference. If your goal to use the money is more than 2-3 years away, you can invest in equity-linked funds and if it is anything less than that then in deposits or debt funds. If you are not sure, then balance it out. Invest some in equity and some in debt, this way you cater to both types of goals. Keep some savings aside for wealth creation too. Wealth creation can be a goal in itself and needn’t be linked to any one specific thing you want to achieve. Ideally, any savings for this purpose should get invested in equity-linked funds.
The one basic advantage of investing early is the benefit of compounding.
The longer you leave your investment to earn interest or gain value, the more compounding will help in growing that value. Rs 1,000 invested at 10% for 10 years amounts to Rs 2,594, but if the investment remains untouched for another 10 years, the value more than doubles to Rs 6,728.
Starting early can multiply your money without any extra effort from your side.
3. Budgeting and borrowing
You need to watch out for the double Bs but they both require a very different approach from your side. Budgeting needs to become a habit and a part of most if not all your money decisions. It is a process that helps bring awareness and clarity before you make decisions. You may go against the budget, but the awareness will mean that you end up making concessions for overdoing the budget in part with saving on it in another part.
Having a budget keeps your decisions balanced and informed.
Borrowing is a whole different story; embrace budgeting but shun borrowing.
Borrowing almost always starts small but has a way of ballooning up beyond control.
The small stuff needn’t be on credit, go back to point number one and start saving instead. If you must borrow for the larger spending like a car or house, then ensure that the value is such that the monthly repayment is not a burden. DO not take on a housing loan that eats into 70%-80% of your monthly income or a car loan which is 20% of your monthly income.
Keep the repayment affordable in a way that you continue to live the lifestyle you desire and also save a little. If that is not working out with the house you want to buy on loan today, then save a little for some more time and ensure that you make a larger down payment.
I got lucky after the first miss in my money life and have followed the essentials dedicatedly to ensure that there is a comfortable balance in all money decisions.
If you too want that control in your finances and want to balance out your present and future money life, these three essential tick marks are a must. They are easy to follow and you don’t have to start in any big way, just taking small steps is enough.