India celebrated its 75th year of being a republic. It meant organising the country’s power centres so that there is no concentration of power. The idea is to protect the freedom and rights of individuals. Your finances need you to constitute a similar structure. Your current habit is more skewed towards saving money than investing. That needs to change if you wish to secure your financial future. A persistently high inflation rate eats into your savings, and you are left with money that has lesser value than before.
India is a country of savers. Most households save money than invest. There are 50 crore permanent account numbers or PAN card holders and similar bank accounts in India. However, there are merely 4.2 crore unique mutual fund investors. That is despite years of relentless campaigning to tell people that mutual funds are the best way for retail investors to invest.
A considerable amount of money is spet on spreading awareness and encouraging people not just to save but invest. The idea is to beat inflation through regular investing.
The less than 10% participation in mutual funds is also an opportunity for the financial services industry. The market can grow structurally, and these companies can expand the scope of passive investing. From your standpoint, you need to organise things in a way that you can generate a steady surplus every month. Unless you manage that, you cannot start to invest.
Bring in the constitution
If a country as diverse as India could adopt a constitutional democratic approach after independence, so can you—the commitment to adhere to the rule of law matters. The same applies to your finances. You need to create a rule book. To get going, you need to build a team. You must get your family involved in building that team. Your spouse will play a critical role in ensuring you can properly structure your finances. There cannot be a concentration of saving in fixed deposits or spending too much on credit cards. You need to create a system that checks excessive expenditure by default. You need the support of your family members in curbing overall expenses in your household. That way, you can create a surplus regularly to invest to meet your financial goals.
The next thing to do is to get a professional advisor on your team. An independent professional can give you a dispassionate assessment of your financial habits. If you are overspending, you must go on a path of prudence to save money. If you are saving too much money, you need an appropriate asset allocation plan. A professional advisor can help you with these first steps.
They would set you on a path of financial well-being because you will save and invest money in line with your financial goals. That way, you can spend any surplus amount left after investing in an expenditure you always wanted to incur. That could be shopping, travelling to an exotic location, or throwing a surprise party for a loved one. Spending after adequate financial planning will allow you to enjoy key moments in your life. It will also give you a sense of achievement.
Knowledge is power
There is no alternative to knowledge. You must focus on the information you need to know about financial planning. Your financial advisor can help you with books and periodicals you can read. They can also inform you about the use of technology in financial planning. However, you need to know things to ask. Many tools allow you to learn about your risk appetite. Many tools can create a short list of exchange-traded funds, mutual funds or stocks for you to invest.
The constitution of your finances depends on your ability to make adjustments according to the prevailing personal and external situation. In an era of information explosion, you cannot hide behind not knowing things. When it comes to your money, you need to be open to the idea of reading about things that are not your domain.