What would you say if I told you the wealthiest man on earth is very much in love with money management and takes this very seriously?
While money management may sound simple, it is, in fact, a complex and challenging task that requires careful planning and execution.
I have talked to thousands of people, and the standard answer was that keeping track of expenses is money management, but is this it? In India, most people don't have 1 lac as an emergency fund, and it's a huge problem.
Today, India is one of the leading growing states in the world and third in the GDP. However, the buying capacity is getting lower day by day because of the need for people to know about money management.
“Financial literacy” can help people grow wealthier over time. It has several aspects, some of which we will discuss here.
The blog below will discuss the top 7 proven strategies for enhancing financial management.
1. Monitor Your Expenses To Enhance Your Financial Situation
Being mindful of your financial situation and managing your expenses is crucial. But it's not just about creating a monthly budget. It's about accountability for your daily expenses, ensuring they align with your financial goals.
Knowing you have emergency funds stored for unexpected situations is reassuring. You should dip into these funds only in emergencies, as they provide a safety net for your financial stability.
By following the 50/30/20 budget rule, you take control of your financial future. This rule is a powerful tool for those committed to managing their income for future growth.
A. 50/30/20 Budget Rule
50%: Requirement
50% of your total after-tax income should go to essential expenses such as merchandise, car payments, groceries, insurance, etc. If it is more than 50%, take measures to reduce expenses, such as buying a smaller house or cooking at home.
30%: Desires
30%: The Spice of Life Allocate 30% of your income at a discounted rate to things you desire but don't necessarily need, like expensive food, shopping, non-essential fashion, etc. These are the things that add flavor to life and make it enjoyable.
20%: Savings
Allocate 20% of your income to savings and investments and treat it as an emergency or retirement fund. This is crucial for your future security and peace of mind.
This is the most common and easy rule for budgeting and money management. By following this rule, one can achieve long-term financial goals.
2. Design A Monthly Budget That You Can Realistically Maintain
As we discussed above, there are some rules for maintaining a monthly budget. But the most important question here is why it is important to have one.
Sticking to a monthly budget is a significant achievement, as it helps us organize all our expenses and ensures we can cover our living expenses without accumulating debt, providing a sense of accomplishment and motivation.
Below, several rules are mentioned that people use to maintain their monthly expenses:
- 50-30-20 Rule
- Pay Yourself First
- Zero-Based Budgeting
- 80-20 Rule (Pareto Principle)
- Envelope System
3. Gradually Increase Your Savings, Even If Progress Is Slow
In India, ₹25,000 is the average amount people spend in a month to live. It's important to note that almost 90% of India’s population earns below ₹25,000, and their prime question is always what and how we could apply such saving rules when we earn so little. This understanding of your financial situation is at the heart of our advice.
Many billionaires say, “Slow progress is real progress,” and that's true. By slowly and gradually increasing your savings, you can gain a significant advantage over those not saving.
This practical approach lets you control your finances, empowering you to make the most of your income.
4. Ensure Timely Payment Of Your Bills Each Month
A case study illustrates that neglecting to pay bills on time can severely undermine our financial stability, leaving us vulnerable in our daily living and unprepared for emergencies.
We often ignore the bills for the next month and chill, thinking that after all, we pay, but this isn't true.
It's about being responsible and enacting your monthly budget, a crucial step we've discussed earlier. Paying bills on time is a vital part of this responsibility.
Paying bills on time can have many benefits, including an improved credit score, reduced stress, and a better financial reputation.
5. Reduce Ongoing Subscriptions And Recurring Costs
Have you ever heard that you must check your pockets for holes first to save money?
Yes, to save money, we take several steps, and most of the steps fail because of unnecessary financial load on the budget.
A few services, such as Streaming Services, Gym Memberships, Magazine or Newspaper Subscriptions, Software Subscriptions, Credit Monitoring Services, Cloud Storage, etc., are holes we often have in our pockets.
We can save 20-25% more money by reducing ongoing unnecessary subscriptions and recurring costs.
6. Save In Advance For Significant Purchases
All generations in the world are fond of trying new things. Yes, it's true!
It's a timeless human trait to follow trends, a habit that transcends centuries and generations. From the 1st century to the 21st, people have always been drawn to the latest 'things '.
Even in the Stone Age, a time of great uncertainty and challenge, our ancestors demonstrated the importance of saving. They set aside resources for future needs, such as food, clothing, and tools, a practice that remains relevant today.
Just as our ancestors prepared for significant events by saving in advance, today's individuals can also benefit from this practice. By setting aside money for future purchases, you can ensure that these expenses don't strain your finances.
A few points which can be kept in mind:
- Set a Specific Savings Goal.
- Automate Savings.
- Cut Back on Discretionary Spending.
7. Initiate A Thoughtful Investment Plan
Let's explore several thoughtful investment plans that could be game-changers for your future purchases and emergencies.
These plans are not just about saving; they're about smart investing for a better tomorrow.
From an investment point of view, we can divide it into three types:
- Long Term
- Medium Term
- Short Term
LONG TERM
- Direct Equity
- Equity Mutual Funds
- NPS
- ULIPs
- Real Estate
- Public Provident Fund(PPF)
- Senior Citizen Saving Scheme(SCSS)
- Sukanya Samridhi Account(ssa)
- Kisan Vikas Patra(KVP)
- Sovereign Gold Bonds(SGBs)
- Government Bonds
MEDIUM-TERM
- National saving certification(NSC)
- Post Office Time Deposit
- Debt Funds for Medium Term
- Hybrid Funds
SHORT TERM
- Bank Fixed Deposits (FDs)
- Debt Funds for Short-Term
Wrap-Up
We have discussed seven proven strategies to improve your financial management and status. By following these strategies, you can prosper, but as I always say, reading and researching can also improve you, and that is again the most important investment of all the above.
For well-researched information and consultation, connect with kaspi services now!
