How to manage your money more effectively
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How to manage your money more effectively

  • Highlights

  • Following constructive & simple financial habits for money management

  • Saving at least 20% of your monthly income for savings

  • Prioritizing insurance coverage & retirement savings

Money management goes beyond maintaining a steady cash flow and tracking your expenses. It involves financial goal-setting, sound fund management and investing prudently. Armed with a few basic tips and tricks, you can tackle your funds and ensure that they cater to your financial goals.

Here are 5 simple hacks to help you manage your finances like a pro!

Build a framework

Building a framework can give you clarity about your present standing, where you want to go, and how you can get there. In order to build a framework, here’s what you need to do:
1) List your current situation, with your goals and plans for meeting them. Your goals could be saving up for a vacation, for buying a car or making a down payment on a home.
2) Split your goals into short-term, medium-term and long-term goals, and

prioritise them. Even if it is a rough draft, make a start and then fill in the gaps later. You can use a simple spreadsheet to do this or rely on a money management app.
3) Apart from your goals, list your existing assets and liabilities as well. This could be a debt that you’re repaying or assets like a property you’ve given out for rent.
Keep in mind that no plan is set in stone. You will have to tweak it as time goes by, but it is important to have a broad framework that you can follow.

Take stock of your savings

In order to be able to invest and maximize your gains, you must have sufficient savings. This will help you put your investment plan into action. The more money you have by way of savings, the quicker you’ll be able to achieve your financial goals.
As a thumb rule, you must save at least 20% of your monthly income. This will go a long way in limiting unwanted expenses and creating a cash reserve for emergency situations. Also, the earlier you start saving, the better your financial position will be. It is better to start saving from your first job itself. This will place you in a better position in the long run.

Don’t ignore retirement

Managing your money is not a one-day affair, but a life-long exercise. While you’re young and part of the workforce, you can start planning for your retirement. As you age, your financial obligations will increase and it will become tougher to save.
You may still be a long way from retirement, but it is necessary to always have it as a priority. One way of doing this is to have a pension plan in place. You could pick one that is offered by the government or a private company or one provided by your company itself.
If your company has a facility where a part of your salary is put into a savings plan such as Employee Provident Fund (EPF), take advantage of it. If your employer matches your contribution, it will boost your savings further. You can later think of good investment vehicles that you can invest in, be it fixed deposits or mutual funds.

Additional Read: 5 Meaningful Ways To Use Your EPF Money

Don’t neglect insurance coverage

Many people believe that one must buy insurance to save tax or enjoy refunds. Although this is correct, this is not the right way of looking at insurance. The advantage of having an insurance policy—whether it is for your life, health, home or car—is that you can always protect yourself and limit your expenses. This way a large part of your savings won’t get wiped out, if you have to pay for damages.

Watch your taxes and debts

While you cannot avoid paying taxes, you can reduce your tax liability to a considerable extent if you choose your financial instruments wisely. Also, never forget to pay off your debts promptly. You don’t want to be saddled with a string of penalties that are sure to chip into your savings further.
Pay off the loans that have the highest interest rates first, and consolidate your debts with a loan. The more debt you clear, the more financial liberty you can get!

Mutual Funds v/s Fixed Deposit

There are other methods to manage your money in a way that is consistent not only with your long-term objectives, but also your short-term aspirations. One way of doing this is to invest in fixed deposits offered by companies that have good credibility.

Additional Read: Short-Term Or Long-Term FD: Which FD is Best For You?

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