The Smartest Steps to Financial Freedom and Personal Finance Success

280
The Smartest Steps to Financial Freedom and Personal Finance Success
If you are making the mistake of allowing someone else to look after your finances, It’s time you took a more active part in building a sensible, personal financial portfolio. Here’s how to get it right.

Financial independence is today the quest of every individual. Both working women and homemakers are on the quest to be in control of their finances. The change is more marked with homemakers, given the social change and the movement from joint families to nuclear families. The basis for financial independence lies in enhancing financial literacy and more involvement in managing your finances.

Work towards financial literacy:

To achieve financial independence and security, we need to understand that it requires being financially literate. Literacy and financial literacy can be quite different as can be seen from the recent Master Card Index of Financial Literacy for women in Asia Pacific.

Thailand topped the score and Korea found itself at the bottom. Indian women scored 61.4 on a scale of 100 which, though quite low, was higher than the scores for China, Japan and Korea.

Traditionally, Indian women have been great savers. With a small pinch of saving from their monthly expenses by homemakers, and the opening of recurring deposit accounts by working women, they have played an important role in ensuring that our savings rates are amongst the highest in the world. However, as much as we can credit ourselves with the savings rate, we are poor investors.

How can we become smarter investors?

Know where you stand today:

To start with, it is important for us to know where we stand today in real terms. This is one of the most important steps to the road to financial freedom. To know the current status of your financial health, take a check on your family income, expenses, net worth, cash flow, assets (investments) and liabilities (debt/loan), insurance and tax this can help gauge how prepared you are for your life goals.

Invest for a goal:

One of the key differences between just saving and investing is “the goal” for which you save. It is important to identify and write down your life goals. By listing down goals, you actually go a step closer to achieving them. This should be specific and measurable. Some of your goals may include, but may not be limited to: owning a house and car, education for children, marriage of children, a foreign trip, starting a business venture, creating a retirement corpus, etc. The type of investments you make depends on the goal you invest for. For example, if you are planning for your retirement, investing in equities (directly or indirectly through mutual funds) is a great option. However, if you are investing to buy a car in the next six months, it is better to invest through deposits.

Understand the basis of investment options:

In India, we are more disposed to investing in risk-free fixed income instruments and real assets. The support of a joint family structure, large employment opportunities with the government, defined benefit pension system, high savings rates and limited consumerism ensured that one could meet most of the financial goals with investment instruments like bank deposits or post office deposits. However, investing cannot be limited to these instruments, as these investment options earn just over or equal to the inflation rate. Which means, what you earn is just about equal to the purchasing power that you started with. To really grow your money, you need to take more risk. Investments in equities may show more volatility but give the best returns over a long period of time.

Insure yourself and your family:

While the investments focus on your future goals, it is extremely important to protect yourself and your family from exigencies and emergencies. Remember, that some unfortunate events like the death of a working member of uncovered medical expenses can completely ruin what you have planned for-your goals. Investing in insurance policies for both life and health ensures that unforeseen health issues and other related events do not impact you financially. Given that we are very optimistic about ourselves and our future, insuring oneself is usually not on our understand this and insure. Besides make a deliberate effort to understand this and insure. Besides investing in a health insurance, it is advisable to insure up to 8-10 times of the annual income.

Plan:

Planning your finances and being involved at every step is the next hurdle in being financially independent. Planning doesn’t come naturally to all for it challenges hope and optimism. The other issue is the effort, time and expertise it requires to make a financial plan. It is therefore advisable to go for a financial plan to an expert. Financial planning is the process of identifying, planning for and meeting your life goals through the proper management of your finances. Financial planning can help you take a ‘big picture’ look at where you are currently and where you want to reach in the future, financially. With the help of an expert, financial planning can bring about discipline to your financial identify your life goals and a direction to achieve them with relative ease. Bringing about discipline in your financial management can help create wealth for you in the long term.

The changes that we see today require more involvement of women in managing the finances of the family. And while it may seem that we are short of answers, there are actually more options available today than ever before, for them to understand and engage with the world of finance. Happy journey to financial freedom!

Tips to plan your financial portfolio:

Financial planning helps you at every stage of your life. Here are some smart tips for each stage:

Young woman (25-35 Years):

  • Young women may have goals to buy a house, a car or a vacation abroad.
  • The mantra is to start early. The sooner you start savings and investments, the better you will get the results.
  • Saving and investing at a younger age lays the foundation for later years in your life and helps reap sweet fruits in the long run.
  • Women at this stage can consider allocating higher portion into equities (as advised by a professional expert).

Middle-aged (35-45):

  • At this stage, women may wish to fund their children’s education expenses, plan for their retirement, etc.
  • They can allocate a higher portion to equity and equity diversified mutual funds via systematic investment plans (SIP) to gain in the long run.
  • Increase investments every time you get a raise in your salary.
  • This is also a stage to evaluate your investments and check what works and what does not.

Later Years (45 and above):

  • Plan for your estate. Writing down a will may help.
  • At this stage, allocate a higher portion to safer instruments (fixed-income avenues).
  • Balanced funds can also be a prudent choice.

LEAVE A REPLY

Please enter your comment!
Please enter your name here