The only 4 step financial ADVICE you will ever need!
Today, the internet is full of self-claimed ‘finance influencers’, claiming to have cracked the exact path to financial independence. They can be usually heard promoting a specific stock or a mutual fund or telling the fact that if you would have invested ‘x’ amount of money in stock ‘y’ during the year ‘z’ then today that amount would have grown to 20x! There’s nothing wrong in telling the success story of a stock but there’s a lot to know before getting to the stage of stock selection and sadly no one is teaching the basics right!
I present you 4 step financial advice which simply cannot go wrong.
1. Tracking expenses:
For me, tracking expenses is one of the best habits that anyone serious about personal finance can develop. No matter how much money you make but if you don’t have a clue about where you spend your money then no financial plan can help you. For me, it is one of the most fruitful habits which helped me in the long as well as the short run. Tracking your expenses not only gives you a clear picture of your spending habits but also helps you in making changes to your decision-making in terms of expenses. At the end of each month you will know the exact amount you have spent, and on what; which will help you to be a little more cautious during spending your hard-earned money the next time you think of swiping your card.
Likewise, year on year you will have your entire expenses in front of you which will help a long way in building lifelong financial habits.
The screenshot above shows my expenses for the last year, as you can see I have spent 21,470 rupees on drinks, which can be minimized in the following year. Likewise, i can easily monitor my expenses and take better decisions henceforth.
2. Emergency Fund & Medical Insurance:
Charity begins at home, and so does finance. The strongest pillar of financial planning is an emergency fund. To build an emergency fund, you should save an amount equivalent to 6 months of your monthly expenses saved at a place from where it can be instantly withdrawn (example: savings account). This sum provides stability and security in the face of any financial problem that may arrive in the future. You won’t need to call your friend or the bank to borrow some money (in case of a monetary emergency), since you have already saved enough to help yourself.
Having said that, there could be times wherein even your emergency fund won’t help you out; for example in case of a physical ailment or a disease. The best way to free yourself up from such a calamity is to get low-cost medical insurance that will make sure that you don’t end up blowing all your savings in case of a medical emergency. Emergency funds and medical insurance will act like a solid shield to guard your hard-earned notes.
Once you have got yourself medical insurance and built that emergency fund, it is time to build some habits.
3. The 40–30–30 rule:
The rule says that whatever amount of money you get in hand(as a salary), save 40% of it, utilize 30% for expenses(rent, grocery, bills, etc) and invest the rest 30%. In this manner, you are constantly saving a good amount of money and also investing the remaining amount so that your money could grow exponentially. Saving money will increase your purchasing power and investing money will earn you bucks even while you are asleep. And as your salary increases, you can make proportionate adjustments to your outgoing 40–30–30 salary split likewise. I have been personally doing this since the day i started earning and trust me it can do wonders to help you achieve financial freedom.
4. Investing your money:
Once you have built a habit of tracking your expenses, built an emergency fund, got yourself medical insurance, and understood the 40–30–30 rule, it is high time you start with investing your money and take your financial game to the next level. I have already discussed a holistic investment strategy in one of my blogs and it simply does not makes any sense to repeat it. So you can click here and read the blog.
The 4 steps which I discussed above surely work if you implement them diligently. It is a plan where we first secure ourselves from any financial calamity that may come in the future and once we get a solid foundation in place, we start to build upon that by saving and investing smartly to reach our financial goals. Trust me this strategy has done wonders for me and it is been more than 3 years that I have stuck to and I feel so much secure and happy to do the same.
Let’s not leave any stone unturned to reach financial independence,
and I hope these steps turn out to be helpful for you as they did for me.
good luck :)