As someone who receives a salary, you probably have regular but limited source of income. But if you have proper financial planning in place, then achieving long term goals like buying a home, child’s higher education, etc. without worried becomes possible.
If you clearly understand saving and investment patterns and begin soon, then you won’t have to struggle financing your aspirations. If you are a salaried person, follow these sure-fire tips to achieve financial security.
1. Decide Your Budget
You need to limit your spending to your earnings. So, create a road map and identify the percentage of expenses every month. Categorize your expenses as essential, entertainment and discretionary.
Then decide a budget of spending. This will help you slide a certain amount away which you can get a fixed interest on.
If you do not know where to invest initially, then opt for a sweep in account that automatically invests a certain amount in a higher interest-earning investment option at the close of each business day.
2. Understand How Loans Work
Loans can actually help you build wealth but that’s true only if you manage your loan responsibly. You may be told that you’re eligible for a higher loan amount.
But take a decision only after considering increased interest rate and EMI in the future. Taking a personal loan is easy and it can prove beneficial if you manage your loan responsibly. That can be done if you have a properly laid out a personal loan repayment plan.
To avoid outstanding EMIs check for options of opting for a transfer of the personal loan debt to a new loan at a lower interest rate. Understand how loans work and then find ways to generate other income sources.
3. Set your Financial Goals
Do you know what is the reason you are investing? Hence, setting up goals, be it long term or short term, is important. You need to be clear about the purpose of investment.
So, make a list and write down all your goals. Categorize them as short-term, medium-term and long-term goals. Expensive hobby, buying a car, foreign trip, buying a home; write down everything that you are planning to invest for.
This will help you determine how much and for how long you will need to invest.
4. Create a Tax Plan and Maximize it
To reduce your tax liability, create a tax plan. If you’re a salaried individual, then you can optimize your tax plan easily. Ensure that you submit your medical bills on time, claim house rent, avail tax benefit on children education allowance, etc.
5. Protect Your Family Against Loss of Income
If you are the main breadwinner in your family then you need to protect your family against the financial setbacks in case of any unfortunate events.
It is highly recommended to get a personal accident policy that provides you or your family with a weekly income in case of an accidental injury or death.
Related: How to Reduce Your Taxable Income
You should also consider getting health insurance that takes care of the medical bills during the recovery.
6. Diversify your Investments and Invest in the Right Ones
Making better financial decisions needs identifying and prioritizing the goals. Once you have done that, divide your investments into liquid assets and fixed assets.
Take different factors into consideration like returns, tax liability, liquidity before choosing an asset class. Make sure you do a lot of research before investing in anything.
If you start saving in your early 20s then you can enjoy financial stability early in life. And if you think that’s difficult with a fixed salary every month, then follow these tips and create a great financial plan. Prioritize early and be happy.