admin Managing money is not a piece of cake. New year is usually a good time to take into consideration our spending habits and take steps in the form of resolution to curb bad habits and encourage new ones. The goal is not to criticise and regret but to understand and learn. Doing well with money isn’t about what you know, it’s about how you behave.
The term “personal finance” refers to how you manage your finances, money and assets, as well as how you plan for your future. All the financial decisions that you take and activities that you perform have an impact, both positive and negative, on your financial health. It is always imperative to consider and review what we should be doing—in general—to help improve our overall financial health and habits. Regular review is also an important part of financial planning. Managing money requires an honest look at your own financial habits, biases, expectations, and cash flow. But it is paramount if we wish to inculcate financial discipline and understand our own behaviour. Ultimately, it is the first step towards improving your financial health.
- Reviewing Your Investments
More than big returns it is important to be financially unbreakable. It is of major importance that portfolio review be carried out periodically to analyse the status of your assets to understand where you stand. Things to look out for is how these assets are maturing, and to keep an eye on your overall cash flow. One thing to bear in mind is that your investment portfolio will change along with your age in terms of the risk profile of your portfolio. For instance, you would be more open to high-risk high return investments at a young age as you have few dependents. In contrast, you are likely to be more cautious in your 40s where you may have multiple liabilities and responsibilities and taking high risks would not be feasible.
The year-end portfolio review is also the perfect opportunity to list all your investments in one place. This allows you to see its overall asset allocation. This includes all asset classes, including, gold real estate, mutual funds, EPF, and equity. The next step is to track the returns on your investments through the year and see whether these are meeting your expectations or not.
At the same time, you can also compare the weightage of an asset against its returns to ascertain the balance between high return and steady investments. The portfolio review gives you an accurate picture of the weightage of each asset, the overall returns on your portfolio, and to reassess this distribution as per your current risk tolerance.
- Saving for the Rainy days
An emergency fund is exactly as the name implies: money that has been put aside for emergency purposes. The fund is intended to help you out for things that would not normally be included in your personal budget. This includes unexpected expenses such as car repairs or an emergency trip to the hospital. It can also help you out in tough times if for some reason your normal income is interrupted.
Although the traditional guideline is to save about three to six months’ worth of living expenses in an emergency fund, the unfortunate reality is that this amount would often fall short of what many people would need to cover a big expense or weather a loss in income. In the uncertain economic environment of today, most people should have a goal for saving at least six months’ worth of living expenses.
- Spend Less Than You Earn
This seems like a no-brainer, and at the same time, very hard to achieve. As humans, we develop certain habits over time which are hard to change. Specially, when we get financial independence, our first instinct is to spend it all. Rarely do people start saving in their early years. I stead, most of it is spent towards personal care like clothes and salon visits, or spent in eating out and going on trips. While it is easier to do this when we do not have any responsibilities or liabilities, once we start a family, it becomes hard to maintain this lifestyle. As a result of keeping up with this old lifestyle, we start using credit cards, and the bills pile up. Essentially, we end up spending more than we earn.
Borrowing from your future to keep up a lifestyle you cannot afford doesn’t have to be your story—especially if you want to be financially healthy. You can make a choice today to live differently. You can choose a life of freedom and financial security while you live life on your terms—not Visa’s
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