7 Steps to Make Your Life Financially Stable

We Indians are very passionate about the thought of being a millionaire. It’s easy to think about that because “Sochne mein kya jaata hai”. When we actually think of this thought, “How can I be millionaire?” We just open doors for further more questions i.e. “I am not earning much to save, how it is possible for me?”Or “I am left with not a single penny after my household expenses, what I plan in it?”

You don’t go deeper to get your much needed answers regarding your goal achieving plan. We think and let go of this as you find no answer to your questions.

But let me tell you one thing that is said by Mr. Benjamin Franklin, “If you fail to plan, you are planning to fail”. This superior quote applies to every single stage of life as it denotes that life is full of struggle and war, and you will fail if you are ill-prepared for it. 

Having a perfect financial plan with yourself is a shield that protects you and your dependents from any financial breakdown that can occur in your presence or absence. if you don’t care about yourself but you care for your dependents, go through the below steps to help yourself with it :-

1). Start Saving

I don’t need to repeat the quote of Mr. Warren Buffet of prioritizing the savings on spending. I just want to tell this thing that, despite of knowing this thing that saving is necessary step for financial planning as all your security and future goals depend your first step. Savings done every month accumulate to make a big corpus which will open doors for many things i.e. Financial Security, Investments for Wealth Creation etc. Disciplined way of saving is an essential part of Financial planning so if you have started saving, Congratulations; you have taken the first step towards better future! 

2). Make a contingency fund

Imagine you are working in a company from last 5 years where your work is going good and your life is going somehow stable in terms of income and a steady 5-10% increment every year. Suddenly it happens that the company laid you off because of some changes in administration or because of any other management decision. Now this can make you blank at that time when you got laid off despite of your consistent 5 year service for the company, as the job isn’t easy to find also. At that time you must have money with you to survive your expenses for at least 6 months which we call as a contingency fund which is maintained to secure short term uncertainties. You should prepare for the uncertainties like this, to bounce back stress free. 

Let’s take another example to make you understand more clearly about the same. You know about the current pandemic because of which many businesses are affected as they are short of funds to run their business in this hard times but if a company is having enough funds to fulfil their employee salary requirement then it’s easy for them to retain people after the hard times are gone. 

The thumb rule is to have a 6 month contingency fund, which applies to all whether it’s a case of employee, business man or company. For e.g. you are having an income of Rs. 50,000 a month from which his expenses are approximately Rs. 35,000 then he must save enough to have a fund of Rs. 2,10,000 (Rs. 35000/month x 6 months) maintained into his bank account.

3). Track your spending.

It’s always advised to keep an eye on your spending habits. Nowadays you don’t need to keep the record of your spending in a diary; you can do the same in some mobile applications which are very handy solution to this. One other step that can be taken out is to use online payment methods for paying wherever it’s possible. This will keep your spending recorded in your bank accounts. 

Payment methods like UPI (Unified Payment Interface) can be used to pay anyone just with the help of the mobile number of the other party, the UPI ID or the QR code. It allows you to keep the records while doing the payments, where you can write the purpose at the time of payment. This will make your bank transaction frequent and credibility better. So you should use this tool wherever it’s possible. If you are already doing this exercise then, Congratulations, you are on the track to your better future! 

4). Save yourself from the Credit Card Trap 

I don’t know that you have faced this or not but many people who are not using their credit card wisely they fall into its trap. Why I am calling it a trap? Let me explain. All those companies (majorly banks) that provide the credit card facilities won’t leave you with ambiguity but the important things are overlooked. 

Let’s understand this with an example. You purchased something that is priced within your credit limits, you think of buying it with the help of credit card. Now what happens, at the end of the month, when credit card bill arrives they provide the whole record of the spending you did with it but there is an option of paying the minimum amount apart from full payable amount and that’s where you can feel tempted and choose to pay only the minimum payable amount to keep the savings blow up totally. And if this becomes habit then it will end up real expensive. 

If the credit card company is providing the facility of minimum payable amount, then there is earning opportunity for them if you choose the same. After paying the minimum amount, the remaining amount that is left, comes in addition with the one month interest. And for your information, being an unsecured money provision instrument, it charges you 36% annual interest rate. And now just question yourself, is that a good instrument to use?

Let me help you out with this problem. Credit card can be a boon and can help you build you credibility. The credit card penetration is just nearly 5-7% in India. Many people are not aware about the importance of this. But to cut it short, the two most important benefits of the credit card are Firstly, you can build your credibility that will help you get faster loans in future and Secondly, many transactions done at malls, petrol filling, online shopping etc. gives you reward points that can be further used to buy something useful for free. So it’s always advised to use credit card just like a debit card where you know that money is going from your bank.

  

5). Manage the Risk in your life

Have you seen Future? Or let’s keep it like; do you know what is going to happen in future? Prediction of Future isn’t possible and assuming that there is no risk that can come in near future is also a mistake. So any risk involved with you in your future should be secured whether it’s pertaining to life or money. The way to secure the risks involved with you can be nullified by taking up a proper insurance policy. Insurance is tool which can be used to hedge the future risks by giving a certain amount of premium. You should have 3 types of policies with yourself i.e. Life Insurance, Health Insurance & General Insurance. 

Life Insurance is a tool where any risk pertaining to your life will be secured for e.g. If you are the earning person in your home and you have around 2-3 dependents then, it becomes necessary to secure the future of your dependents in your absence. So in this case your life which is important for your dependents will be secured by taking up a Life insurance policy that will help your dependents to live their life without any financial breakdown that can happen in your absence. One should take insurance keeping in mind the human life value of itself

It’s necessary to have a total life insurance with yourself. In India the Insurance Penetration has reached up to 4% of the total population. But if we take average amount of insurance with the 4% people, it is just 7.8% of what they need. So you can see the gap, people who are possessing a life insurance policy is not having the adequate of what they must have. So you must have a policy with a sum assured equal to your human life value.

 

Health Insurance is a tool where any risk pertaining to money that can occur due to medical or accidental uncertainty which can cost you big hospitalization charges. The health insurance is not having any particular calculation for finding the perfect value for anyone but it is always advised to have a health insurance of minimum 5 lakhs.

General Insurance comes into picture when you want to secure anything which is non-life but having a value i.e. Vehicle, Home, Factory, Gadgets etc. Any of your personal belongings that are having a significant value to you can be secured through general insurance. The general insurance for Motor vehicles is made compulsory by the government and is totally strict on the same. 

If you have secured yourself with this simple tactics, Congratulations you are ready for the next step!

6). Invest Smartly

Have you thought that why as per, labour laws; an amount is always deducted from our salary? Let me explain, there was a time when people in government job were able to get the pension every month after their retirement. But from which source government was giving the pension amount every month. That was because of the monthly deduction of an amount from the salary every month, and investing into PF (Provident Fund). 

The amount accumulated in whole work life is then used to provide a monthly cash flow without disturbing the whole PF amount at the retirement. The amount in the PF that remained after the monthly deduction keeps growing at the rate of 7-8%. This is known as SWP (Systematic Withdrawal Plan). 

There is saying at many places, government job is better as they give a pension after retirement every month. But to clear all those thoughts, everyone is able to do this by itself, investing a small amount every month in on the basis of your risk profile and age. 

Generally, the risk should be taken keeping in mind the financial security, that’s why I kept this at last because if you save regularly, if you track what you are spending on, if you have secured your life then and then you should take a step towards wealth creation which can help you build a big corpus for your retirement. And just like the pension, one can create his own monthly cash flow from this corpus. 

There are many investment options available in market i.e. namely Mutual Funds, Direct Equity, PPF (Public Provident Fund), Bonds, NCDs etc. And as a wise man has said to not keep all your eggs in one basket, the money that you invest every month should be invested in balanced ways to nullify the risk of money erosion and inflation as well. 

And after this, you are on the path to have a financially stable life. 

7). Monitor your Activities

At the end, while qualifying over all the above steps, you just need to monitor the steps you have taken and keep an eye on the activities that you are doing. It’s simple like taking a look every month on your investments; pay your insurance premiums timely to de-risk the policy lapse. Your goal achieving process should not intersect with your present but should go parallel with it when you have started. And after a certain point of time, you will see you have automatically achieved your goals on the basis of your discipline.