- Date : 17/12/2021
- Read: 5 mins
Learn how to spend wisely, save for the future, and become financially secure with these tips.
The new year is upon us and it is time to make new promises, stick to them, and be better versions of ourselves. If you think you need to manage money better and get in control of your finances, 2020 is the year to do it. Here’s a guide for every millennial who wants to start their journey towards financial security. These seven steps are easy to follow and highly effective too.
1. Create a budget
Every good financial story starts with a well-thought-out budget. A budget sets the stage for how much you can afford to spend; it can make your life dreams come true. Use 50% of your income towards monthly expenses. This includes rent, utility bills, lifestyle expenses such as dinners and shopping, and paying off debt if any. Save up 20% to meet short-term goals such as going on vacation, buying a car, etc. Keep the remaining 30% aside to invest, buy insurance, and create an emergency fund and a retirement fund.
2. Buy insurance
Buying insurance is the first step towards adulting. You need to buy health insurance for yourself and your family. So, if anyone needs to be hospitalised, your savings won’t get depleted. You also need to get life insurance to ensure your loved ones are taken care of in your absence. This may not seem very important when you are in your 20s or 30s, but remember: the sooner you start, the lower the insurance premium you have to pay.
3. Get another source of income
While you have your career going, think of a way to supplement your income. You could start an online business, conduct classes in something you’re good at, start a blog, offer your writing or designing skills, etc. There are a multitude of things you can do. Sit and evaluate the skills you have and figure out ways of monetising them. Creating a more extensive network also helps you find various opportunities. While friends and family help to a certain extent, use your social skills to build reliable contacts that may be in the same industry as you or could help you get started with something you’ve always wanted to.
4. Build your credit score
A credit score is extremely important; it reflects your financial standing. Make conscious efforts to build a healthy credit score. You can do this by using a credit card to pay bills and shop and always paying the full amount before the specified date, filing your taxes on time, etc. A good credit score will make it easy to get any kind of loans in the future. But remember, a credit card should not be used as an alternative - it is only a medium. Don’t go overboard when using a credit card, and only spend how much you can pay for later. Avoid taking multiple credit cards if you find it difficult to manage payments. The last thing you need is multiple payments due on several cards.
5. Set clear life goals
What is it you want to achieve? A short-term goal could be a holiday in Europe. A long-term goal could be buying a house. Identify your goals and start saving for them. You can start a recurring deposit to fund your vacation, invest in mutual funds to buy a house, buy gold, etc. It’s easier to be a good saver if you have a clear goal.
6. Create an emergency fund
An important part of being good with money is to be ready for any kind of eventuality. So, create an emergency fund that you can fall back on in case life throws a curveball at you. It could be anything from losing your job to the hospitalisation of a family member. The fund will save you from financial ruin and help you get back on your feet quicker.
7. Start saving for retirement
Retirement may seem a log time away, but there is never a better time than now to save for it. Accounting for inflation, you want to save up as much as you can so that your golden years are truly golden. Figure out a blue-chip mutual fund investment. Depending on your risk appetite, invest in debt or equities and watch your money grow over the years, thanks to the power of compounding. Use this Retirement Planning Calculator that will help you arrive at the absolute minimum that you should aim for in order to lead a secured retired life.
Take it one step at a time. Set up goals throughout 2020 to get things in motion. If you’re able to implement and follow these seven tips, you will be not just good but brilliant with money by the end of the year. Besides this, check these 7 Money mindset shifts to adopt in 2020.