This Guru Purnima, lets focus on one of the most important aspects of life- having Financial Independence.
Financial Independence is of great significance, irrespective of where you stand on the Income scale. We may come across people with 1 crore worth of package but having a poor financial planning, and then those with even Rs.25,000 monthly salary still having their financial priorities sorted.
Today, lets focus on some small steps all of us can take, especially women, to deepen our understanding of financial planning.
Let us focus on our ability to not depend on anyone, and find our own footing.
Financial Independence is not about becoming rich, or earning more, Its having the independence to make our own decisions, choose our priorities and retire with dignity.
Kuch paane ke liye, kuch khona parta hai.
This sounds a little filmy, but thats exactly what savings means! Investing a part of your income today, and delaying your current consumption lets you compound your money to be able to fuel something bigger for your TOMORROW.
Saving : Every drop of water contributes to the Ocean.
Developing a habit to part with your money every month, and parking it in an income generating avenue should be your first step, starting today. No matter how small you start, but start.
Here comes an interesting concept of compounding. Every rupee that you invest in an interest generating vehicle, helps you grow your fund exponentially. This is because, the interest you earn on your capital the first month, gets added to your capital in the second month. Then in the 2nd month, you can earn interest on just on the original investment but also on the interest. Which means, you are meaning interest on the capital as well as interest on Interest.
Emergency Fund : This is the fund you set aside to counter any sudden need of money that may arise in your life. This could be a medical emergency, a sudden change in job, or any unplanned expense that may show up like an uninvited guest. This keeps you financially prepared and a step ahead. Without worrying about the finances, you ll be able to keep a clear head and approach the problem in hand with a calm and clear mind. Ideally, aim to build an emergency fund that can cover 3–6 months of your essential expenses.
Insurance : Many people believe that opting for Insurance can wait. NO, Insurance can not wait. Start early. One of the biggest advantages in the Financial Planning segment is the first mover advantage. In early years of life, the premium for a term life insurance is lower, saving you money and your family, some peace. The general rule of thumb is, calculate your annual income and multiply it by 10 or 15. This should be enough, and then of course based on your responsibilities and the number of dependents you have, you can tweak the figure.
Research : Hire if you can, a financial advisor. Consult them. But do your own research. Study about various Mutual funds, Stock Market, Bond Market, Commodities, and now we have Alternative Investments also. These are the places your money will eventually flow into, whether you layer it with expert advice, mutual fund managers, or DIY. Knowledge and basic understanding of these, keeps you a step ahead in life.
Diversification: Diversify your savings. Dont park all your money in just Equity. If your choose mutual funds and SIP, make sure to diversify it across asset classes and investment styles. Clearly in the early years, it will be difficult to set aside money for each of these market places, so time your savings. Maybe opt for an SIP , co incide it with the date of your salary. Buy bonds when you get a bonus or extra incentive. These small steps will help you gain big in the future.
Nominee : This aspect is mostly ignored by most. Ensure every investment has an updated nominee. More importantly, review your nominations after major life events such as marriage, divorce, or the birth of a child. While a nominee often facilitates the transfer process. Make sure to always name a nominee for all your investments, and encourage those around you to also follow these footsteps.
Taxes form an important part of our life. Every year, we have to pay a part of the money we have earned the entire year, to the Government. To encourage savings, the government has many tax saving schemes for our benefit. We have in place a number of deductions and exemptions also. For example, the premium on insurance can be used as a deduction thereby reducing our tax liability. Certain eligible investments and expenses can reduce your taxable income under the applicable tax provisions, depending on the tax regime you choose.
Start small. Stay consistent. Trust the power of time. Your future self will thank you for every financial decision you make today.