Take these 7 steps to avoid financial constraints in life

In life, we make multiple choices daily. From picking the breakfast to watching a show or a movie on TV before we hit the bed. At times, we regret doing or opting for some of those which leave us in bad taste. We learn and mutate our behavior in a way to get better at our decision making and to pick right choices in life.

This starkly reflects in our investing behavior where we tend to explore an investment option and burn our fingers, to realize there’re other options to have done at the first place. And in some of those choices we mayn’t get an exit when we wanted despite knowing it was a bad decision, either in haste or not. To counter these mistakes, the following are the right moves one could do.

Have a budget: Inarguably, the first act in taking control of personal finances. To know the cashflows of each individual and have a grip of where the possible pilferage is the starting point. To assess the future inflows and accordingly plan for the expenses while also keeping a tab on the possible savings. It’s like knowing your future and the entire list of things you would achieve fulfilling the life goals. Also, don’t let recurring expenses define the budget but it’s the other way round that makes a budget success. So, one needs to prioritize savings over the expenses.

Emergency Fund: Life can’t all be planned, or life won’t pan out as planned. One needs an exigency provision to immediately tide over a short-term upheaval. This fund could vary in form and mode but having one is critical. For instance, one could retain the defined fund either in cash or a dedicated credit card which could be utilized for any emergencies in life. The amount could be defined based on their lifestyle expenses but ideally one could put aside at least six months of their expenses as a fund. Some even allocate that in physical gold.

Insurance: In life, we get to experience many surprises, some pleasant ones, and the rest unpleasant. One can’t be ruined by the unpleasant ones and the insurance is the only hedge against such. Of the many insurance options available, the most important risks to be considered are the three D’s i.e. death, disease and disability. These are the risks that could create financial instability for an individual and to their families.

Credit: Don’t decry credit as bad. One should know how much credit is good for themselves and to what purpose it’s being employed for. Individuals should resist on the discretionary spending which could dent the overall budget and could even lead to a stressful financial health. Paying off the loans or credit card debt within the stipulated time allows you not only to access fresh credit but also maintain a good credit record. This would avoid any additional expenses incurred through interest payments and help in increasing saving capacity. A loan for house or higher education has more merit than for other trivial cravings, however passionate one could be.

Professional help: Seeking assistance in managing ones finances is not a bad idea at all. One could have exposure to financial education or experience in investing for a short time but to plan for the long term and for life goals, it really helps having a financial advisor as it’s difficult to provide committed time for such prolonged durations. A professional would not just help to devise a plan but could act as a third party to provide with their perspective on some of the decisions we make, some very emotional. They could act as a speed-bump in our train of thoughts to ensure we stick to the agreed plan. So, don’t hesitate to approach for professional help.

Financial plan: Derive a financial plan, of course, it’s a comprehensive exercise where there’re many elements that needs to be taken care of. That includes the above list and furthermore. It encapsulates defining goals, assessing risk appetite, addressing preferences, prioritizing the needs and allocation to the assets in-line with the risk tolerance. This is not a one-time exercise but an evolving and continuous step-by-step approach to financial freedom. It includes periodic reviews and times both pro-active and reactive reviews when needs/goals change, or the investment climate changes.

Donate: They say what you give comes back multi-fold. So, make sure that your budget not only just includes planning and allocating for your or your family needs but also some allocation to the society at large. There’re innumerable ways one could explore this and in some cases one could use the tax provisions also while doing what one likes.

And these if followed would prevent regrets in life and lead to a better future.

(The author is a co-founder of “Wealocity”, a wealth management firm and could be reached at [email protected])