Expert Talk: 7 Steps To Stay Financially Fit And Independent
We all have certain dreams and goals we want to achieve. Whether it is to start your own business, take a trip to Europe or retire early; you must plan to counter any obstacles that may come your way. Wealth building largely depends on habit, the foundation of which is built on solid financial behaviour. Whether you have to plan for these by yourself or have a sounding board in the form of a companion, here are some crucial steps which will help you in planning your financial journey and help you inculcate habits to stay financially fit.
Be Aware Of Your Earnings And Expenditure
The first step in the journey of becoming financially fit and independent is to understand your financial patterns. This means that not only is it essential to be aware of your earnings, it’s also vital for you to be aware of what your significant expenditures are. Use a journal or an online spreadsheet to write it down and understand your financial behaviour. Make sure you jot down all details as they will further help you make decisions accordingly.
It is important to make a note of how your income and spends have evolved. Review your financial goals and how far have you been able to achieve them.
Set your goals right and make them achievable
Set financial goals since the very beginning, especially for short term plans like a trip or buying a car. For long term goals, you can consider investing in real estate or decide to use different investment mechanism to create wealth, depending on your goal. Keep aside at least 30% of your monthly income to fulfil these goals.
A systematic way to approach this is to break down your goals into mini-goals. For example, you may be willing to pay off your car loan debt worth 4 lakh in the next three years. However, paying off a mortgage of this size can take a lot of time, and your progress will be slow. If you aren’t making enough monthly, it can seem to be unachievable, and you may give up. A mini goal is very specific, wherein you could decide that “every month I will keep aside INR 10,000 to pay off my debt”, leading to a more targeted approach.
Make Use Of Financial Investment Tools
Time-based investment tools like Systematic Investment Plans and incremental investment through lump sum helps in building a healthy portfolio. SIP is among the most effective tools to invest. Automation is a great place to start and reach financial independence as fast as you can. The strategy is to make, save, and invest as much money you can. Try to increase the automation savings amount once every few months.
Turn To Professionals When The Need Arises
It is important to reach out to professionals like registered financial advisors, who in turn would help you select and decide the best financial tools and investment avenues available in the market to achieve your financial goals. Even though they charge a fee for their swan fiduciary services, the shortcuts they will find and traps they will resolve will save your money in the longer-term.
You could also consider joining a financial community like being LXME, etc., where motivated individuals and members, with a common goal, are willing to share tips and discuss their journeys. Such platforms help you be accountable, and you can learn techniques to manage your money better.
Create Multiple Income Sources
Income is the base material to build up the infrastructure for financial freedom. Adopting other sources of income sometimes becomes essential, and finding ways to monetize your other skills is an excellent way to begin. Re-invest in yourself when the time and need arise, especially through upskilling.
If you have a full-time job, then you can start a side business or take up freelancing gigs to earn some extra money. A person owning a full-fledged business too can diversify their income by expanding their business base to add more products, outlets, etc. A passive income is a must for financial growth, and with easier access to the internet has become a fairly accessible option.Discipline And Debt Repayment
A good-paying job and a diligent saver also need to make sacrifices when it comes to paying off debt, as debt only gets heavier with time if not duly paid.
Debts are of two kinds – good debt and bad debt. One can say home loan, education loan, etc. as good debts and on the other hand, credit for travel, fun, or shopping is considered as bad debt. Avoid bad debts by managing your finances well, and keeping aside certain money specifically for these expenditures. One must focus on eliminating existing debt before setting life goals. It is advisable to have a debt-repayment strategy which is realistic and does not come at a very high cost.