We organised ourselves from a chaotic colony of imperial power to a constitutionally-backed nation on 26 January 1950. Our fundamental rights and duties are enshrined in our Constitution. They help us establish the rule of law and give us a sense of order to conduct ourselves within the framework. As a nation, we may still be a ‘work-in-progress’. However, the importance of being a vibrant democracy that follows a constitution cannot be understated.
Just like our nation makes a gradual transition to a modern state, you need to work on transitions to your financial life too. For years, you relied on physical assets like gold and property for financial security. Your financial well-being matters to the country’s productivity and future growth. The more you save and invest in financial assets, the more you contribute towards nation-building.
If you are new to investing, you must start by educating yourself on personal finance. The first principle is understanding that merely saving money is not enough to tackle inflation. When prices rise for years, your cost of living rises too. Your income and investments must keep up to tackle that consistent rise in inflation. When inflation goes up, interest rates rise too. The cost of your borrowing surges. As a result, you spend more at the same income level. You need to earn more or spend less to create a monthly surplus consistently.
Help yourself first
When you start earning, it is important to pay yourself first. By that, you need to put aside money for your retirement. When you are young, that is the last thing on your mind. After all, you have worked hard to get the proper education to earn a living.
However, the cost of retirement rises as you grow old. You can have enough money to deal with complex life situations when you start early. Organising your finances can begin with engaging a professional financial advisor. They will help you maintain a monthly budget and work on creating a surplus. When you succeed in that, you can start investing.
Your first financial goal should be an emergency fund. In an uncertain world, your income can see setbacks that are hard to anticipate. You may want to put aside a kitty that helps you tide over a temporary job loss or any medical emergency. There is always that debate about how much money you need to keep in an emergency fund. Usually, it is about six months of monthly expenses. However, you can do more than that too.
You must organise your investments efficiently if you are slightly experienced as an investor. Professional financial advice will help. If you own a credit card or have a loan repayment, you need to be aware of your credit score. You must maintain a healthy credit score if you want banks to finance your dream home or car. Besides that, you need to also get on top of your tax situation. You must pay your taxes regularly and file your tax returns so that it is easier for you to borrow when you need.
You must educate yourself on your investment options and asset allocation. The thumb rule is for long-term investments for financial goals over three years, you must allocate more equity assets. Many think investing in equity directly or through mutual funds is risky. However, you can protect your wealth at all times through intelligent planning and investing. There are financial assets where you cannot lose money, like sovereign bonds or fixed deposits up to R5,00,000.
You must look after your health to protect your wealth. Make lifestyle changes to keep you fit and away from chronic conditions and save you money. Prevention is always cheaper than cure. You could spend a lot more on medical expenses in the future. You must get adequate life insurance and medical insurance. In the aftermath of the great pandemic, having an emergency fund and insurance is not an option. Creating a sound financial plan is the least you could do this Republic Day.
Build your emergency funds
You may want to put aside a kitty that helps you tide over a temporary job loss or any medical emergency. There is always that debate about how much money you need to keep in an emergency fund. Usually, it is about six months of monthly expenses.
Rajas Kelkar
(The author is editor-in-chief at www.moneyminute.in)