Smart Financial Habits: All that you need for your financial wellbeing.

In today’s fast-paced world, it’s crucial to adopt financial habits that empower you to manage your money effectively. From tracking your expenses to making wise investment decisions, every decision plays a significant role for a stable financial future. In this article, we share some known but often overlooked points essential for your overall financial well-being.

Spending – A Judicious Approach

Track Your Cash Flows: You work quite hard to earn money. Spend some time at least once in a month to track your cash inflows and outflows. Make a note of your expenses, check your credit card bills or payment wallet history periodically to review your spending habits. This practice provides valuable insights and allows you to manage your money more efficiently. 

Spend Wisely: Warren Buffet’s timeless advice rings true: “If you buy things you do not need, soon you will have to sell things you need.” Prioritize spending on essentials and avoid impulsive purchases that can derail your financial goals.

Spending Future Income: Credit card outstanding can quickly become a wealth destroyer if not managed responsibly. The exorbitant interest rates can burden you financially. It is sensible to avoid using credit cards when you don’t foresee an inflow of funds to pay off the outstanding balance. Similarly, a Personal Loan also carries a higher interest rate and should be avoided as much as possible. 

Long Tenure Loans: While considering a loan, you might mostly check if EMI for the loan is affordable or not. But what about the high amount of interest you will end up paying over the years? You will realise this only after a couple of years when the major damage has already occurred. It makes best financial sense for you to repay the loans in shortest possible time. Hence, the possibilities of early repayment should also be taken into consideration while planning long tenure loans.

Resist Peer Pressure: Don’t fall into the trap of trying to keep up with others’ extravagant lifestyles. Replicating the lifestyle of your friends and colleagues as showcased on social media, unless affordable, can cause a dent on your finances. Focus on a sustainable lifestyle that aligns with your financial goals, rather than succumbing to peer pressure.

Upgrading Lifestyle: In today’s world of disruption, we are vulnerable to situations like job loss, diminishing professional relevance, reducing business profitability etc.  Hence it is essential to be extra cautious and plan your finances efficiently to absorb the impact of such unforeseen situations on your lifestyle.

Insurance – A Financial Shield for the Dependents

Insurance acts as a shield against unforeseen emergencies that can be financially catastrophic. Apart from providing a financial support, it also helps to maintain the social prestige of the family during uncertain times.

Term Insurance: A Term Insurance covers your life to ensure your family’s financial needs are taken care in the event of your demise. An amount equivalent to what can cover your liabilities (if any) and the future family goals is generally ideal enough. However, your family’s financial status, number of working members in family etc. also needs to be taken into consideration so that you are not over insured.

Health Insurance: A Health Insurance helps you and your dependents to manage the costs of medical treatments to a certain extent in an event of any medical emergency. Generally, a family floater insurance is good to cover entire family under one umbrella. However, factors like age of the senior-most family member, existing ailments etc. needs to be considered while selecting a suitable health insurance.

Supplement Corporate Health Insurance: A lot of people feel that the health insurance provided by their organisation where they work is sufficient. The company-provided health insurance is limited to your employment period and is often not sufficient. With the rising medical costs, having a decent health insurance cover is necessary. Most health insurance companies today also offer a top-up health insurance. The top-up insurance gets activated only when the hospitalisation expenses breach a threshold chosen by you while taking the insurance. Consider getting separate health insurance for you and your dependents (including parents/in-laws) to ensure you have comprehensive protection.

Insurance as an Investment: Remember that primarily purpose of an insurance is to provide financial security to your family in case of an unforeseen event. Insurance premium is a ‘cost’ necessary to protect your family’s long-term financial security. Insurance is supposed to be treated as a basic financial hygiene and not as an investment option.

Investment – Making Informed Choices

Build an Emergency Fund: Create an emergency fund equivalent to your six months’ income initially and gradually increase it to match up to three years’ financial requirements. This will give you an immense sense of security and confidence to manage adverse situations which can impact your finances. Relying on your parents or dipping into your long-term investments for emergencies is not a good idea.

Set Clear Goals and Plan Well: Make a note of your financial goals and create a plan to achieve them. Understand your short-term, medium-term, and long-term goals clearly. This exercise will help you to take informed investment decisions and select the most suitable investment products.

Start Investing Early: The best day to start is always “TODAY”. Time is the most valuable asset in the journey of investing. The power of compounding works best when you start investing at an early age. However small the amount is, making a start is way better than waiting for the right time/amount to start. The cost of delay is detrimental for your financial wellbeing in the long run.

Invest Regularly: If you have a regular monthly income, it is best to invest via Systematic Investment Plan (SIP). SIP not only inculcates discipline and consistency, but also helps you to benefit from the volatility of equity market in the long run. SIP is the most convenient and hassle-free method of investing in equity market.

Embrace Calculated Risks: While guaranteed return products may seem appealing, they often fail to beat inflation in the long run. Hence, it is important to understand and take calculated risks necessary to achieve your long-term financial goals. The biggest risk today is the inability to take calculated risks.

Avoid Frequent Withdrawals: Frequent withdrawal from your long-term investments hinders you from achieving your planned goals on time and defeats the very purpose of investing. Investing is no different than a marriage which requires a long-term commitment. Creating an emergency fund for unforeseen expenses will prevent you from dipping into your long-term investments.

Involve an Expert: Consider working with an expert who can provide valuable insights and handhold you in the journey of long-term wealth creation. Their expertise will assist you in taking sound financial decisions aligned with your goals. Also, an expert plays a critical role in protecting you from biases which influence your investment decisions that can hinder long-term wealth creation.

Educate Yourself and Family: Educating yourself and your family members about financial matters will help you take informed decisions and bring financial stability. Spend quality time with your investment advisor to learn about the dos and don’ts of finances and involve your family in the investment discussions.

Cut Unrealistic Expectations: Wealth creation via investing requires discipline and patience. It is utmost important to have realistic expectations from your investments. Greed can often cloud your judgment and lead to poor financial decisions.

Invest in Regulated Products: Invest only in products that are backed by regulations. It’s not a wise idea to be adventurous with your hard-earned money particularly when the law of the land does not provide you a cushion. 

Beware of scams: Be cautious of Ponzi schemes offering unbelievable returns. Flashy marketing tactics can often be misleading. Carefully read and understand the terms and conditions and pay attention to statutory disclosures before investing in any product. 

Behaviour – The Most Important Ingredient

Emotional Trap: Feeling missed out during times of market euphoria, friend/colleague making better profits etc. can influence your emotions and investment decisions. FOMO (Fear of Missing Out), FOBO (Fear of Better Option) etc. should not be a trigger for your investment decisions. Even what you hear, read and conclude can often trigger an action which might not be in the interest of your financial wellbeing. It is best to keep your investment decisions devoid of such emotions. Invest based on your financial goals and act only if it is in the interest of your financial wellbeing. 

Avoid Casual Investing: Base your investment decisions on information or data backed by thorough research, sound analysis and a decent track record. Relying on tips or rumours seldom leads to wealth creation. It is best to consult a trustworthy expert to handhold you in the journey long-term wealth creation.

Invest Based on Needs: Select an investment product based on its merit and suitability to help you achieve your investment objective. Do not choose a product based on its historical returns or an admirable/catchy pitch. 

Catching the Market Cycle:  A lot of people often attempt to outsmart the market – “I will buy when the market is low and sell when it is at the highest level”. You can succeed once or twice and it would be because sheer luck, but it is impossible to catch the market cycles consistently. Timing the market is a challenging task even for the most experienced investors. An adage – “It is not about timing the market, but about the time in the market which creates wealth”, holds always true.

The list of dos and don’ts is very long. It is critical to understand that successful investing goes beyond consuming vast amounts of data. It involves understanding your own behavior, emotions, and biases that can impact your investment decisions. While knowledge is valuable, wisdom takes you beyond the limitations of knowledge. Reflecting on your experience, learning from other’s mistakes, and insights from an investment expert can help you cultivate wisdom. Embrace the ups and downs in the journey of investing, focus on long term, and allow your investments to grow over time. Historically, long-term investing has yielded substantial returns. Success has no short cuts or quick fixes. And in this journey of making money from money, patience and right behavior is the ONLY price that you need to pay to achieve success. All it requires is planning, discipline, and a long-term perspective. Start today and empower yourself to build a secure financial future.