If you are wondering how to start saving for your goals, or have failed to stick to your plans earlier, here are some tips to stay focused.
Have a budget
Lay out a budget with 30:70 allocation for savings and spending. A well-laid out budget shows how your costs add up. This would help you identify and cut avoidable expenditure.
Start with saving
The best way to ensure wealth creation is by prioritising saving over spending. Even before you pay your rent and other bills, lock in your savings and investments. Go for automated savings and investment options. You can set standing instructions with your bank for a mutual fund SIP or recurring deposit at the start of every month. This way, your savings and investment goals will be met compulsorily.
Link investments to goals
To be able to fulfil your financial goals, it’s important that you pick the right investment instruments. Knowing what you are saving for, and how much time you have to build the fund, helps you strategise your investment for the best returns. While long-term goals such as retirement or a house might mean investing in PPF or equity mutual funds, short-term goals such as buying a car would mean investing in a liquid fund or fixed deposits.
Control your debts
Many people get into debt without realising how long it could take to pay it off. Often one debt leads to another, when the borrower doesn’t have a concrete repayment plan in place. With credit card and personal loans being easily available, people often indulge in overspending, getting caught in a debt spiral. Avoid getting into debt for things that can wait. Even if you borrow from a friend or a financial institution during an emergency, make sure you have a repayment plan before you do so. This may mean liquidating some of your investments or using funds from your emergency reserve to pay off the debt.
Don’t forget insurance
Never go without health insurance and life insurance if you have dependents. It’s easy to lose your savings in a jiffy during illness or hospitalisation, leaving you (or your dependents) financially vulnerable. Health insurance and term plans are cheap, and you must include them as one of your financial priorities.
The writer is CEO, BankBazaar.com