7 baby steps to Personal Finance (It's time you sort out your finance)
Here are 7 kickass steps to sort out your finance:
1. Invest at least 10% of your income as early as possible
Let your focus here be on AT LEAST 10 per cent, the more the merrier.
The second part that ought to be highlighted 'as early as possible' as in Personal finance time plays a bigger role than the amount. Early starters always have a major advantage e.g INR 1,00,000 invested at the age of 20 at 15% becomes INR 19,71,549 by the time you reach 40. The same amount invested at the age of 25 turns out to be INR 9,35,633 by the time you are 40. So your procrastination for 5 years cost you roughly INR 10 Lakhs. Need I say more about the importance of starting early.
2.Create an emergency fund (at least 6months expenses)
An emergency fund is a must-have irrespective of family status, whether or not there are any dependents on you and Whether you are in your 20's or 40's. Your emergency fund can help you stop adding to your debt with each bump in the road. An emergency fund can help cover the things you don’t budget for like major car/home repairs or medical costs. You can use your emergency fund to handle these stressful events and make it easier for you to stay focused on getting out of debt. Or help you for an even worse scenario where you are out of work, a 6-month buffer not only helps you stay calm during this period but also makes sure you do not engage in anything foolish like using your retirement fund or withdrawing from your long term investments.
3. Never buy Depreciating Assets on Credit
This is the worst mistake you could make. Why would you want to pay interest on buying a thing whose value decreases the moment you open its packaging? (Well unless its an emergency and you don't have a choice). The point being, consumer goods company charge high interest on EMIs (Zero Percent EMI is a Myth), so it makes much more sense to push your purchase by 6months and put the EMI amount in a deposit and buying once you have the required cash.
4. Track your Income and Expenses
Devote a few months to tracking all your spending, to see where your money goes. List all your goals and compare it with your spending pattern, more often than not you will realise that your miscellaneous expenditure is the major reason you are not able to reach your short term goals in time.
5. Build passive income system for residual income
Passive income is quite possibly one of the most important and central ways that the rich get richer. It’s how you detach your ability to earn from the time that you do have in a day. If you’ve ever heard the term, making money while you sleep, no truer words have been spoken. With passive income, you do make money while you sleep. Genuine passive income is the holy grail of personal finance is the highway to Financial Freedom.
6. Always do your research before Investing
Research is a part of an investor's due diligence. Whether you work with investment professionals or on your own, it's wise to do your homework yourself. Well it's your money and nobody is going to be as diligent as you are while investing, nobody understands your risk appetite, your needs better than you.
7. Become financially Literate by reading and learning
Academic qualification is important but so is financial education, schools are forgetting the latter. Setting yourself up for a sustainable financial reality starts with you becoming educated about money. Financial education is your best investment. The sooner you get it, the more it’ll be worth to you.
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