The definition of middle class or upper middle class is changing rapidly along with its increasing earning power. Effective management of your personal finances is mandatory to cope with the collective demand the world is putting on your plate.
Make sure you develop a habit of budgeting as a part of your finance management routine. Many times people connect budgeting with cost-cutting. It is not at all true. By budgeting, you will be able to understand clearly how much you earn, allocate for each cause and invest.
Shrewd way of spending and saving
Saving more doesn’t mean that you must spend less. You need to spend in a shrewd way. By following budgeting, you will be able to focus on your spending, identify the trends and re-arrange the spending pattern. Track your expenses carefully, you will easily understand where you can cut the costs and spend on things you enjoy the most.
Invest in insurance policies
Go for a pure term health and life insurance policies. Be cautious about taking any ULIP schemes. You will be able to handle any eventuality when you have a back-up finance plan in the form of insurance.
Allocate for emergencies
Unexpected events or emergencies are part of life and we must acknowledge this in our finance planning process. Approximately 3-6 months of routine family expenses must be kept aside for handling such emergencies.
Clear your debts
Debt payoff planning will help you to identify how much you need to allocate every month/quarter/fixed period to pay the debt and where you can save more or cut cost to quickly pay off the debt.
Setting a goal is the key to succeed in whatever you do or manage. Always set a long term goal, say buying a house, in five years. To achieve this, set short term goals such as you will invest in a particular ‘investment mode’ to earn ‘x’ amount in ‘y’ period, so that you can buy a house in five years without a loan. Without a goal, you won’t be able to reach where you want to be.
Plan for your retirement
Want to lead the same lifestyle after retirement? You must start planning for the retirement as soon as you start earning. Understand how inflation works and plan how much money you would require to spend on the same lifestyle, after 20 or less/more years.
Re-balance your finance portfolio
Evaluating, assessing and re-balancing your finance portfolio periodically is most important. This will help you to keep track of your earnings, expenses and lead to efficient cost cutting and saving options.
Hire a professional
Availing professional guidance always adds a great value. Take help from the personal finance advisors to assess your finance goals, budgeting measures and effectively manage your finance. Follow these rules diligently. You will definitely reach a better place in the world of finance.
The writer is director & chief financial planner, Holistic Investment Planners
Extracted from Tax Guru