Three-step plan to take charge of your money

A study from a couple of years ago stated that over 70 per cent adults are stressed over their financial condition. This number we can safely assume would have only gone up. Another study shows personal finance is one of the biggest factors behind stress that eventually affects other areas of their lives.

When you think about your financial situation, what is the first thing that comes to mind? Do you feel in control and confident of your finances or do you get worried that you do not have important ends covered? In either case a bit of financial planning advice will be helpful in taking complete charge of your finances.

Income, savings and investment are the three pillars of your financial empowerment. You need to work on all three at all times to get to a strong financial position. This simple 3-step plan should help you take charge of your financial life:

Budget your expenses

Begin by creating a plan of your spending on an excel sheet. First list down all mandatory spends like rent, EMIs, household expenses, children’s school fees, travel, fuel etc. Then put a certain amount in a separate account that will act as your emergency fund – only to be used in emergencies like medical exigency or loss of job and never for lifestyle expenses. Keep putting money in this fund till there’s enough to cover all your expenses for at least 5-6 months. Ideally, put this money in a high interest giving savings account.

Once you have set aside money for your emergency fund, plan your investments from the rest of your income, like begin SIP in equity mutual funds or for those not comfortable in market-related plans, start putting some money in your PPF account. Only the money remaining should then be used for lifestyle expenses and leisure.

Manage your debt

Many of us today are burdened with multiple EMIs at different rates and left with little to spare for savings and investments. One of the most important aspects of financial planning is to manage your debt responsibly and smartly. The best way to do so is to consolidate your existing debt into a single loan at a low interest rate, longer tenure and other favourable terms and conditions. You can look at various types of loans like Personal Loan, Loan Against Property, Top up Loan, for existing home loan borrowers, and Loan against Securities to find the most-suited credit option.

To reduce the loan amount, you may consider using your low-yield investments to pay off certain portions of your debt. Remember, always repay your unsecured loans like personal loans and loans against credit card first as they usually have a higher rate of interest.

And before you apply for the new consolidated loan amount, check your Credit Score to ensure its high enough to secure you a loan at a good price. In case your Credit Score is low, first build it up before you apply for a loan.

Commit to your financial goals

Financial planning is all about getting on track to meet the big financial needs you would have in your future. So, whether it’s investing for long term goals like retirement, buying a home or a car, funding your child’s education and marriage or short term aspirations like a foreign vacation, each goal should be carefully planned financially. Investing in mutual funds is one of the best ways to meet your financial goals, as they outscore other alternatives in the long run.

One can invest in short-term funds for goals maturing within 3 years, hybrid or balanced funds for goals maturing within 3-5 years and equity funds for goals maturing after 5 years. To save tax under Section 80C, one can invest in Equity Linked Saving Schemes (ELSS) with lock-in period of just three years.

—by Naveen Kukreja, CEO, & Co-founder, Paisabazaar.com