Gaining control over your money can seem daunting, especially if you don’t have a head for finances. However, with these simple pointers, you can start with step one – making authentic financial decisions that are tailor-made for you.
Acknowledge The Reality Of Your Finances
Sometimes it’s easy to get swept away with the idea of how things should be, versus how they really are. This is especially true of one’s finances. ‘The first step towards making an authentic financial decision is to manage your money based on your bank balance,’ says personal banker P Shanthi Kumarakrishnan. ‘Don’t look at someone else’s financial situation and consider it ideal. What you’re looking at from the outside need not necessarily be true. The problem stems from the feeling that we cannot change how we manage our finances. This isn’t necessarily true. The first step is to change our mindsets. Embrace the idea of self-improvement in this area, and get used to the initial discomfort that comes with changing your financial habits.’
Create a roadmap
It is important to keep your financial goals in mind and manage your finances accordingly. For instance, if your goal is to purchase a home within ten years, you have to identify how much it will cost, save up the bulk of the amount, or at least ensure the down payment and subsequent EMIs. Alternatively, you might want to invest a significant amount in assets such as gold each month. Keeping these goals in mind, it’s important to track your income and expenses, your savings, debt and loan repayment, insurance policies, any familial commitments, and tax liabilities. Once you have factored in all these aspects, sit down to structure your financial management around them. After you’ve created a roadmap, stick to it as much as possible. Keep aside a small fund in case of any contingencies so that you won’t have to deviate.
Align your finances with your values
There is no right or wrong when it comes to deciding what to do with your finances. You have to be authentic to your own needs and values, and accordingly choose how to spend your money. Some of you may want to spend it on experiences such as travel and food, prioritising personal fulfilment and growth, perhaps setting aside only a small amount as a nest egg. Some others may choose to invest aggressively in a diverse portfolio of stocks and shares, saving and multiplying for the future, prioritising security above all else. Remember to keep your commitments and circumstances in mind before deciding on how to deal with your finances. If you’re a parent, for instance, you will have to ensure enough funds for school fees, healthcare for your child, and so on.
Don’t make decisions instinctively
It is tempting to order sushi on an online food app or pick up a new pair of shoes while visiting the mall. No doubt this feels good, but the endorphins are temporary and it can also be extremely damaging to your finances if you’re operating solely on impulse! Make decisions with your head, and not your heart. Think of the wholesome homecooked meal waiting for you, or the countless accessories in your wardrobe each time you’re attracted to picking up something on a whim. Having said that, it is fine to give in once in a way (in fact it may even make the indulgence feel more special!), but don’t make a regular habit of it.
Balance your present and future
While managing your finances, it is important to keep past learnings in mind, make the most of opportunities in the present, and invest for the future. Shanthi says, ‘If you’re finding it difficult to figure out how to navigate this, try the 50-30-20 rule, which will help you stay true to your financial goals. Put aside 50 per cent of your income towards your monthly expenses – both wants and needs. Rent, groceries, utilities like electricity, and eating out, should ideally come under this. Use 30 per cent of your income towards investments, both short-term and long-term, such as mutual funds, shares, and fixed deposits. The remaining 20 per cent can go into a fund for a major expense at the end of each year. This could include a car, or a holiday, or a piece of jewellery – whatever fits into your budget.’
Shanthi adds, ‘Remember to leverage technology whenever possible. Financial apps contain excellent algorithms that can factor in your income, expenses, and goals to provide optimum solutions.’ Always prepare for unexpected outcomes and consider that every financial decision of yours comes with a ripple effect. Once you keep these key pointers in mind, it isn’t too hard to stay true to your financial goals and make authentic decisions.