“How can I start financial planning when my salary is so low?”
This is a common question; people ask when they ‘think’ that their income is lower than that of others to initiate financial planning!
We all work hard in our own profession /business. Every profession, job or a business has its own methods to generate & pay off the returns which we receive as income.
For a salaried person, a salary which he/she receives, depends on the nature of industry & company he/she works in. e.g. a person working in IT industry draws higher salary than the person working with a small production company.
For a professional, it takes a few years till the time he/she starts earning a sizable income which he/she aimed at.
A business also takes time to pay off the returns.
Every profession also comes with its own risks, ups & downs.
but, this doesn’t mean one should wait for receiving ‘higher income’ to start own financial planning.
Following are 12 simple ways to plan your finances even if your income is lower-
Note your expenses regularly:
It’s true that, we wait for a month to receive a salary or wait for the deal to complete to receive our income when in business, but we spend the money in the blink of an eye on many things.
To count such expenses other than mandatory ones like bill payments, medical expenses, education fees, etc, we should regularly write & record our expenses.
The dairy or a simple excel sheet, when you maintain for this purpose, it speaks a lot about our spending patterns, increasing prices & costs.
2. Draw a budget:
Budget is the outline we need to follow to spend within our means. It helps to prioritize our expenses, set goals & timeline to spend on it. It helps us to avoid short term debts like credit card expenses
3. Plan your shopping & meals at a restaurant:
If you notice, majority of our spending is on shopping & eating out at restaurants. These days, for a shopping we spend money on many things which we didn’t plan before visiting a shop, just because some things attract us, some are available on discounts, we buy them.
When we plan our shopping, we buy definite things & items we really need.
e.g. there are many sales & discount offers which are available multiple times a year by renowned brands &
E-commerce sites. If we need anything, then we can shop around such times. We can buy branded items at lesser costs.
It’s not necessary to shop every time there is a sale or discount bonanza but we can plan for the items we need to buy around any of such time.
Eating out at hotels & restaurants, is costly too. Even eating chaat items on the food stall can cost around Rs 200 for a family of 4.
If we eat like this multiple times a month, then this cost will lead to thousand rupees.
Better to plan our food & meals. East healthy, at home & buy affordable branded items with better planning
4. Stay away from credit cards, personal loans:
Debt repayments eat major part of our cashflows. When we take loan, we repay it with interest. Rate of interests are in turn depend on majority of factors like repo rates.
Today we have short term quick loans like credit cards. We get to ‘pay the money which we don’t own at the time of purchase’!
This comes with a cost which gets multiplied if we don’t pay at time.
We so need to avoid such loans where we pay in multiple times than we have actually borrowed.
5. Fix your future goals:
Goals are our dreams with a date! We all have certain goals to achieve in life irrespective of how much we earn.
Goals like children education, financial independence, retirement planning etc are some of the major common goals.
When we shortlist such goals for us, write them down, we give our career, money & behavior a certain direction in order to achieve them.
Fix your future goals early in your career so that investments can be directed suitably towards achieving them
6. Income- Investments= Expenses
Whether we are earning lesser or more, we all should follow the following-
Income- Investments= Expenses
We have limited sources of income but various ways we spend our money on & that’s why often people are worried that they don’t have ‘money left to invest’! Above formula will help when we spend our money.
First, keep aside money to invest & then spend the rest of money.
This will ensure that you are investing & spending in right way
7. Learn & understand basics of personal finance:
It is highly important to learn & understand basics of personal finance. Read & understand about various investment options available, their risk levels, investing methods, tax implications etc.
Today, one can access the information via internet through blogs, newspapers, articles, videos.
When you are armed with right information, no one can mislead you. You can take a right & suitable decision for your investment.
8. Start early with whatever you have:
Investment journey is a long one! With responsibilities to shoulder on, initially a person has to spend his income to pay off for the needs & responsibilities.
But even in this phase, he/she starts investing whatever he/she can, it will benefit in the long term.
There are some investment options like mutual funds which gives the benefit of compounding, some options like public provident fund are suitable for long term goals with safety.
One can chose from many such options to start investing. Here, a person can better learn about investment journey, can modify the behavior suitably in response to its investments & goals
9. Have suitable & adequate insurance:
Insurance works as a ‘shield’ to our wealth & personal finance!
Life insurance is always meant for our dependents & their financial independence after our death. Term insurance fits better here.
Health insurance on the other hand helps us to maintain our well being by supporting to pay for the cost incurred in medical expenses & hospitalization. One should apply for a suitable health insurance for self & family.
When you have suitable & adequate insurance policies, your money invested & cashflows remain intact as your costs are taken care by your insurance policy
10. Explore newer investment options:
Today, we have many investment options along with traditional ones. Some are market linked like mutual funds where some are in debt category like RBI bonds.
Earlier, people used to invest in few available investment options only like bank fixed deposits, postal investments etc.
When you have good options available now to invest, you can invest as per your goals, risk appetite & investment tenure.
But while investing, read & understand about investment instrument. Don’t fall prey to products which give ‘questionable more returns compared to other options’ & that too ‘instant’
11. Accumulate wealth accelerators:
There are some assets/ investments which boost our wealth & generate returns like investing in suitable equity instrument. Whereas some assets like big cars are depreciating assets. Though they depreciate in value, they give ‘status’ in a society.
Its better to stay away from such gratifications & focus on accumulating returns generating investments.
This will further help to achieve our future goals & financial independence.
12. Keep your emergency fund ready:
Emergency fund is the amount of corpus which helps us to pay off our mandatory required expenses during a time of emergency. Sudden job loss, loss in the business, etc are emergency situations but we need to deal with them financially too.
A person should have minimum emergency corpus equivalent to 1.5 years of his/her monthly expenses.
It can be invested in debt liquid funds, short term bank FDs & a part can be kept in savings a/c.
They say, ‘the best time to plan your finances was in the past & next best time is NOW’!
Income, will keep on increasing with your hard work & dedication but planning should not wait!
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