A wild swing in the value of the Rupee and uncertainty in interest rates have negatively impacted the sentiment of investors in India. Volatility has affected products across the investment spectrum, including equity mutual fund, debt fund, and stocks, with people exploring other investment opportunities to accomplish their financial goals. This may look a wise thing to do in the current volatile scenario, but a few prudent personal finance decisions made early in your career may work wonder for your investments. To achieve the goals and become financially successful, you need to work on these five crucial factors.
Make A Financial Plan Early In Your Career
There are enormous benefits of chalking out a financial plan early in the career. It helps you to understand how you much money you would need and utilise at various stages in your life for achieving your financial goals. Early financial planning can help you to get a bigger corpus for your retirement, and you can also think of early retirement. Early financial planning allows more time to work towards your goals and helps you weather the market’s volatility. It thus makes sense to make a financial plan early in the career to reduce the risk, achieve money goals on time and create a significant corpus for your retirement.
Adopting And Reviewing The Financial Plan
The financial plan that you would have made at the age of 21 may not be suitable for your requirements when you reach the age of 30 years, 40 years or post-retirement. The risk appetite and return requirement of a person changes with time and age. Also, the economic condition continuously varies, so you may not get the same result as you would have expected when making your financial plan. For example, you streamlined a financial plan when inflation was 4%, so you set the goal of 10% p.a. return on investment. After 3 years inflation surges to 7% level and you do not review your financial plan, which will result in you falling short of achieving the goal.
After reviewing the financial plan, it is vital that you adopt the corrective measure that can help you accomplish the goal; otherwise there is no sense of reviewing the plan.
Starting The Investment Early And By Investing Regularly
You cannot rule out the investment risk and inflation risk, but by starting investment in the early age and investing regularly, you can reduce the impact of all such risks. For example, a person starts investing at the age of 30 years and wants to retire at the age of 60 years. It’ll allow him 30 years to build a corpus for the retirement, but if one starts investing at the age of 21 years, then it will give him nine extra years that can help mitigating the risk and achieve the financial goals on time. Similarly, by investing regularly, the volatility gets averaged out in the long term, and one can get closer to the financial goal.
Spending Less And Saving More
When you get income in hand, then you should try to save it as per your financial plan, and after that use the remaining amount to spend on various things. Make a budget of all your expenses and try to spend money according to it, avoid unnecessary expenditures and review your budget at regular intervals. Avoid putting money in depreciating assets such as a car, bike, white goods, etc., and try to build wealth by accumulating appreciating assets such as property, gold and so on. It is also essential to avoid unnecessary debt as it may lead you to a debt trap. Always maintain financial discipline in repayment of loan EMIs.
Hedging The Risk Using Tools Like Insurance And Contingency Fund
Insurance can protect you and your family members from financial setback under an adverse situation such as hospitalization, permanent disability, critical illness and on your death. Insurance products like term Insurance, health insurance, accidental cover, critical illness cover, etc. can protect you and your family members financially. Apart from getting insurance cover, you must also maintain appropriate contingency fund to avoid liquidity crunch under a financial emergency like unexpected job loss, illness and so on.
Compliance with your financial plan is the key to personal finance success. It is important to review your financial plan from time to time and make essential changes in your goals as per change in your income, age and risk appetite.
The writer is CEO, BankBazaar.
BankBazaar.com is a leading online marketplace in India that helps consumers compare and apply for credit card, personal loan, home loan, car loan, and insurance.