How often have you experienced being broke just after a few days of receiving your salary? Well, it is not just you but hundreds of other people who find themselves in the same scenario. You may feel guilty that time but see yourself getting in the same position every time. If this sounds like you or someone you know, keep reading.
1.Chart Out Your Monthly Budgets
The first thing that everybody needs to do is to chart out their monthly budget. For this, check out your salary slip; it will give you a fair idea of deductions from your salary. You’ll get to know whether you need to make any investments. Remember, investments are made not only for wealth purposes but also to reduce annual tax liabilities. After you have understood your salary structure, list out the in-hand salary that you have received together with all the expenses this month. It helps you to get a structured estimate of your funds.
2.Prioritize Your Investments and Expenses
This step includes planning and prioritizing your investments and expenditure for the month. Most people follow a ‘spend first, invest later’ approach which prefers taking out all the expenses they intend to incur and invest whatever amount is left. However, if you follow this, it may lead to extravagant spending. Leading financial advisor suggests an ‘invest first, spend later’ approach. It states that one should make investments first and utilize the left amount later. It builds a disciplined investment habit.
3.Be Careful of Extravagant Offers & Schemes
Most retail companies offer heavy discount or other schemes at the last or start of the month. One should be careful of these schemes as it leads to spending more in the name of mere discounts or buying products that you do not even need. You should strictly adhere to the expense budget that you had made above. A lot of people unnecessarily buy subscriptions to applications and services that they don’t even use. Be cautious of all such wasteful expenses.
4.Build Emergency Fund
Situations like the current Covid-19 pandemic where millions of people lost jobs, fell ill or even died are the reasons why it is crucial to maintain an emergency fund. It should be a large fund to accommodate all expenses of at least 6 to 12 months. It should cover all necessary payments that you will need to make for your livelihood, including food bills, electricity bill, water bill, insurance policy payments, EMIs. The amount should not sit idle. You can invest them in liquid funds. It saves your funds from the effects of inflation while ensuring withdrawal whenever you want.
5.Simultaneously settle your debt
While managing your expenses and investment, make sure that you pay off outstanding loans and other liabilities. Paying out the debt reduces the burden on your income and ensures that there is no additional interest. Keeping the practice of paying out the loans and other liabilities ensures a debt-free future.
Making a note of financial status is very important. Every individual shall be of utmost caution of all the expenses that he makes. Working out one’s budget on a spreadsheet or piece of paper can work out wonders for an individual. It provides a clear outline of earnings, investment and expenses. If followed diligently, this can make one a master of his financial status rather than driven by his sentiments.