1. Get Paid What You’re Worth and Spend Less Than You Earn
It sounds simplistic, but many people struggle with this first basic rule. Make sure you know what your job is worth in the marketplace, by conducting an evaluation of your skills, productivity, job tasks, contribution to the company, and the going rate, both inside and outside the company, for what you do. Being underpaid even a few thousand of rupees a year can have a significant cumulative effect over the course of your working life.
No matter how much or how little you’re paid, you’ll never get ahead if you spend more than you earn. Often it’s easier to spend less than it is to earn more, and a little cost-cutting effort in a number of areas can result in big savings. It doesn’t always have to involve making big sacrifices.
2. Stick to a Budget
One of my favorite subjects: budgeting. It’s not a four-letter word. How can you know where your money is going if you don’t budget? How can you set spending and saving goals if you don’t know where your money is going? You need a budget whether you make thousands or lakhs of rupees a year.
3. Pay Off Credit Card Debt
Credit card debt is the number one obstacle to getting ahead financially. Those little pieces of plastic are so easy to use, and it’s so easy to forget that it’s real money we’re dealing with when we whip them out to pay for a purchase, large or small. Despite our good resolves to pay the balance off quickly, the reality is that we often don’t, and end up paying far more for things than we would have paid if we had used cash.
4. Contribute to a Retirement Plan
If your employer has a employee benefit plan and you don’t contribute to it, you’re walking away from one of the best deals out there. Ask your employer if they have such plans (or similar plan), and sign up today. If your employer doesn’t offer any type of retirement plan, consider an alternative. Work out a good retirement plan and make regular contributions to it.
5. Have a Savings Plan
You’ve heard it before: Pay yourself first! If you wait until you’ve met all your other financial obligations before seeing what’s left over for saving, chances are you’ll never have a healthy savings account or investments. Resolve to set aside a minimum of 20% to 25% of your salary for savings BEFORE you start paying your bills.
6. Invest
If you’re contributing to a retirement plan and a savings account and you can still manage to put some money into other investments, all the better. Don’t just save money, invest it in proper asset classes according to your future needs and requirements.
7. Maximize Your Employment Benefits
Employment benefits like EPF, flexible spending accounts, medical / health insurance, etc., are worth big bucks. Make sure you’re maximizing yours and taking advantage of the ones that can save you money by reducing taxes or out-of-pocket expenses.
8. Review Your Insurance Coverages
Many people are paying too much for life and disability insurance, whether it’s by adding these coverages to car loans, home loans, etc., by buying whole-life /endowment/ULIP policies or by buying life insurance when you have no dependents, when term-life plan makes more sense. On the other hand, it’s important that you have enough insurance to protect your dependents and your income in the case of death or disability.
9. Update Your Will
Most of them don’t have a will. If you have dependents, no matter how little or how much you own, you need a will. If your situation isn’t too complicated you can even do your own will with very little effort on a simple paper with two witnesses. Protect your loved ones. Write a will.
10. Keep Good Records
If you don’t keep good records, you’re probably not claiming all your allowable income tax deductions and credits. Set up a system now and use it all year. It’s much easier than scrambling to find everything at tax time, only to miss items that might have saved you money.
Reality Check
How are you doing on the top ten list? If you’re not doing at least six of the ten, resolve to make improvements. Choose one area at a time and set a goal for incorporating all ten into your lifestyle.
Debt Decisions
Debt can be a harbinger of bad news depending upon its source. Consumer related debt often carries high interest rates and a variety of ridiculous fees. For the New Year, consider reducing existing debt by starting with high interest carrying debt first, keeping new debt to a minimum, and consolidating existing debt to lower interest bearing accounts. With high interest earning investments scarce in a poor economic climate, paying off high interest debt can be one of the best investment decisions you can make.
De-clutter
De-cluttering is a great way to increase your financial management efficiency. Through methods such as reducing excess accounts, canceling unnecessary services, moving paper statements to online statements, and keeping separate files in a file box, file cabinet, or similar organized container, you can reduce the amount of financial related clutter that is accumulating in your home or office. You may also want to consider moving paper bills to online payment methods to reduce the number of bills arriving in the mail and cut down the number of checks you must write each month.
Set New Goals
With the coming of a new year, you may also find the opportunity presenting itself for setting new or updating old financial goals. By looking over last year’s goals and determining what you achieved, failed to achieve, and maybe should try to achieve this year, you can outline goals for the New Year. When doing so, you might want to consider categories such as debt reduction in the areas of consumer, vehicle, educational, or home related debt, the creation or expansion of an emergency fund, new or expanded investment opportunities such as PPF, Mutual fund SIP contributions, and estate planning items such as the creation of a will, trust, and designation of an executor or power of attorney, trustee.
In conclusion, there are a variety of options when it comes to ways, techniques and tips for improving your financial management abilities. Finding the methods that will work best for you, and then tracking, evaluating and re-evaluating their progress and success throughout the year for your particular financial situation can make a significant difference in your overall ability to better manage your finances.