If you are in the age group of 20 to 40 years, it’s most likely that you are making major life decisions – be it pursuing higher education, getting married, buying a new home, or accumulating funds for retirement. Putting aside these commitments and obligations, have you ever been introspective about whether you are on the right track in terms of money management habits? Research says it takes 21 days to form any new habit, personal finance or otherwise. But in reality, whether it takes three weeks or three months, cultivating good money management habits must start from the day you earn and with absolute consistency. When you build good money habits, you can make wise decisions and have clarity on the long-term picture. But what are these money management recommendations that adults must pay attention to?
Most of us don’t follow a budget, even though it’s one of the most effective personal finance management tools. If you want to develop good habits and get a better handle on your finances, then it’s crucial you comprehend where and how much your income is going month after month. To establish a budget, simply take note of your existing monthly expenses, take into consideration one-time expenses (e.g., insurance renewal), and compare your earnings versus expenses. If you are surviving paycheck to paycheck, which is the case for most salaried individuals, you’ll need to analyze your various spending categories and determine which ones to cut back on.
If you are one of those to never check your credit reports, it’s time to change your ways. Not just in India, but on a global scale, it was found that 34 percent of consumers reported discovering at least one mistake in their credit reports. If you don’t take measures to rectify a mistake on your record, it can potentially drag down your score, thereby making it more costly to borrow in the future. You are eligible for a free copy of your credit report on an annual basis from one of the four major bureaus: Equifax, Experian, TransUnion CIBIL, and CRIF Highmark. Alternatively, you can pay and request an online report every four months, review it well, and indicate any errors you spot. This will also help you avert the risk of being a victim of identity theft.
One method that finance experts swear by is the 50/30/20 budget rule, which recommends allotting 20 percent of your income for savings. This also means that once you meet the goal of saving 20 percent, divert that money towards high-return investments, so you avoid spending the money reserved for investments on something else. It’s also important to remember that your investment goals could and will change. So, whenever you have surplus money at the end of the month or year, devote it to one of the investment options.
This is the most important money habit you can build for excellent financial health. Know that any money you earn is your household’s income, including cash vouchers, rental income, salary, bonus, investment returns, and so on. Likewise, any money that is spent from your account gets utilized to cover your debts and expenses. This awareness of your personal finances, in other terms, the debt-to-income ratio, will propel you to take the next step towards your financial success.
Ask any finance expert and they will say, the sooner you start saving, the larger retirement corpus you will build. This is the effect of compounding. When you plan and make regular long-term investments targeted to safeguard your retirement life, the worth of your money increases and you end up creating wealth, which enables you to retire peacefully. If you are unable to choose from an array of investment options or are nervous about the volatile market, seek advice from a wealth management company. Take advantage of their knowledge and you are most likely to be guided toward the best investment plans with high returns.
Like any other habit, managing personal finances comes through self-discipline and practice. As you build these habits, the right opportunities will emerge and you will realize that managing money is not really about working for money, but rather making your money work for you. If you would like help managing your personal finances and making investment decisions, consider talking to an expert. A certified wealth management company like Dezerv can help you reach your ultimate financial goals.