Most young people may be faced with a familiar dilemma – should they consume now and save later, or should they begin saving now? The alternatives and opportunity to spend are many for today’s youthful population. There is absolutely nothing wrong with spending some of what you make; nevertheless, you must also do one thing more – which is to protect the sustainability of your finances. Let’s take a closer look at a few crucial stages in creating a financial strategy that will give you the finest of both worlds: saving for your future needs while not sacrificing today’s expenditures.
Consider making a plan for your financial future
The first step is to admit that you truly need a financial plan, complete with written down goals, risk management strategies, and investing strategies. It will be beneficial to do this in an Excel spread sheet because as you advance in life, there may be a number of adjustments, which you can do it if you use an excel sheet.
Budgeting
It is always good to make a household budget. Start with a basic structure, and over time you may add more information to it to account for even modest revenue or expenses you may encounter. By doing this, you’ll be able to better manage your money and calculate your investable surpluses on a monthly, quarterly, or annual basis.
Emergency Fund
Establish an emergency fund before you start thinking about investing. Save at least 6 months of spending in an emergency fund, whether it’s for an unexpected job loss or an illness or injury. You can put money in short-term debt funds or liquid funds, which should be for emergency usage only and you can also receive a tax-effective income, better than a bank savings account.
Risk management
This means ensuring you have enough health insurance for yourself and your family in alongside the group medical coverage offered by your employer. Similarly, carry life insurance that is at least 15 times your yearly take-home pay. Once the dangers have been addressed, you may consider investing for the foreseeable future.
Set Goals
It is now time to start thinking about your future. It begins with determining your objectives, such as purchasing a home, educating your children, marrying, and planning for your own your golden years, which is the retirement. Once determined, calculate the inflation and the sum of money you need to save to fulfil them over the number of years. You may then begin saving a set amount for each objective, making the investment process simple.
Asset Allocation
Before you begin investing, you need to make an asset mix plan. Putting all of your eggs in one basket may lead to disaster in the long term. As a result, depending on your goals, length, risk profile, and so on, you should diversify your money among multiple assets such as stock, debt instruments, gold, and real estate.
Portfolio Holdings
Your investing portfolio is now being built. Many of the investment instruments such as equity mutual funds, debt funds, gold funds, sovereign bonds, Fixed deposits, PPFs, etc., can be part of your investment portfolio. Diversify your investments among assets, but not too much within an asset class. You need to regularly assess the performance of market-linked securities such as mutual funds versus their benchmark.
Plan your taxes
Along with managing your assets, keep an eye out for tax-saving investments that might help you save money as well. PPF, ELSS, and NPS are prominent tax-saving options. Align your tax-saving assets to your long-term objectives. This allows you to not only avoid taxes but also enhance your wealth over time.
