Everyone craves financial freedom but most people do not comprehend what it means. Financial freedom means the ability to do what you want without being hassled or bogged down by debts. It is the ability to be able to manage your expenses well and balance your monthly budget.
When youngsters start out on their first job, they need to understand the basics of financial planning from day one. It is important to understand how to manage money. Earning a salary is important but more importantly, you should know how to manage the take home salary you get.
Everyone has expenses but they can be divided into two categories –
It is always tempting to splurge on everything money can buy but soon you will run out of money by the 20th of the month. Some people start using the credit card around that time, treating it as an extension of their salary. This can take them down a slippery slope before they even realise what went wrong.
This blog is an attempt to put together the points that you must be mindful of if you want to achieve financial freedom.
- Creation of Contingency Fund
- Maintain a Monthly Budget
- Cut down discretionary spending
- A credit card is not your salary
- Use a personal loan for emergencies
- Invest your money wisely
- Take out an Insurance Policy
Creation of Contingency Fund
Life is unpredictable and it is important to create a contingency fund for emergencies. The first rule is to put away a part of your salary every month in a safe contingency fund. A minimum of 20 percent of your salary should be set aside for savings. You can use a flexible fixed deposit in a bank for this purpose so that you earn an interest higher than the savings rate while your funds remain liquid and available for use. Exercise discipline so that you never touch this fund unless it is an absolute emergency and no other solution is in sight.
Maintain a Monthly Budget
If you keep spending your salary without keeping track, the money will run out before the month does. From day one of earning a salary, you must have a monthly budget and stick to it. You must ensure that you include all your mandatory expenses in the budget so that you are never caught by surprise. Once you create a budget and stick to it, you will realise how much money can be saved every month.
Cut down discretionary spending
Expenses can be towards necessities or luxuries. It is important to maintain a balance between the two. It is not necessary to fall for every marketing gimmick or participate in every online sale. Exercising prudence, exploring options, comparing prices will teach you to shop smart and save money. It is totally uncool to pay more for anything just because you have money to spare.Once you cut out the unnecessary frills, you will be surprised at the bulge in your wallet.
A credit card is not your salary
This point needs to be hammered into people’s heads. Treating a credit card as an extension of your salary is the most common mistake that people make and they end up paying a steep price for it. Your salary is what reaches your bank. A credit card can be used to make a payment when you are not carrying cash. In today’s times, you would be carrying a debit card too. Hence, there is no reason why you should swipe your credit card at the first instance. In case of an emergency it is perfectly okay provided you can pay the amount in full on the due date. The real problem starts when people start using their multiple credit cards to splurge wantonly. In no time they run up huge debts which they struggle to repay. As an immediate solution they start paying the minimum amount due and kick the ticking time bomb down the road. Credit cards charge a whopping 2-2.5% per month on the outstanding balance and soon it snowballs into a huge pile of debt. Being forewarned is being forearmed. Always use your credit cards with caution.
Use a personal loan for emergencies
No matter how prudent you are, you may always have to face a sudden cash crunch or a sudden unplanned expense that needs to be undertaken immediately. You would do well to curb the urge to swipe the credit card and instead opt for a personal loan.
A personal loan is an unsecured loan that can be taken for any purpose. At LoanTap, you can take a personal loan from Rs 50,000 – Rs 10,00,000 for a period of six months to five years. The annual interest rates start at 18% which is far cheaper than a credit card. What’s more, the entire process takes just 24-36 hours from start to finish! You can prepay the personal loan after you service the loan for six months without any prepayment penalty. You can select the amount of loan and the tenure based on your convenience and your monthly budget so that the EMIs do not burden you out. You can pick your repayment terms based on the perfect fit for you.
If you are already in a credit card debt trap, you can choose to take a personal loan to consolidate your debts and pay them off. This will help you to reduce your interest outgo avoiding defaults and impairment of credit score.
Invest your money wisely
If you follow the above steps from the beginning, you will be able to spare money for investing in various asset classes like property, gold, shares etc. This will help you to grow your money faster and reach your personal goals. The key is always to start early and be consistent. Starting a monthly SIP is highly recommended as it fits your pocket and you can start small. You can increase the ticket size when your income starts growing and you have more money to spare.
Take out an Insurance Policy
Last but not the least, do take out an insurance policy. You can take out a term policy or a risk insurance policy that will protect your loved ones in case something happens to you.
Knowing your personal financial goals and working consistently towards them from day one is bound to yield results. In case of any financial emergencies, LoanTap is just a click away!Personal Loan