Personal finance is the art of managing your money to achieve financial goals. Money management encompasses drawing strategies to survive and thrive in any macroeconomic situation, good or bad. These help you fortify your finances to deal with unpredictable situations like losing your job or suffering from an income shock. While there is talk about a global recession, here are a few financial strategies to keep you prepared for all financial seasons.
Financial Goals Should Be Your Prime Focus
Your short, medium and long-term financial goals are targets you set for yourself to secure your future. Setting up financial goals and working towards them will keep you focussed on what’s truly important to you, and keep avoidable or unnecessary spending at an arm’s length. It is thus important to set financial goals as soon as you begin your working life. Your financial goals will keep you on track even in tough situations like a slowdown. Take calculated risks to achieve your goals and regularly review your investments to be in command of your present and future financial situations.
Adequately Insure Yourself And Family
Insurance is important as it financially shields you and your family against emergencies. A sound financial strategy requires buying adequate insurance coverage after factoring in your family’s needs. Whatever be the situation, remain insured. As a working person with dependents, there are two kinds of insurance plans you must have. Term insurance covers your life risks and replaces your income in the event of your untimely demise, while a health insurance plan will help you cope with high hospitalisation costs, keeping your savings intact.
Build An Adequate Emergency Fund
Building an emergency fund is a significant financial step that you should never skip. It is an all-weather financial protection from any unexpected financial problem. A financial emergency can strike any time and you must stay prepared by creating an emergency corpus that can take care of your regular expenses for at least 3 to 6 months, or longer if required. Creating your emergency fund should be one of your primary financial goals.
Idle money loses value due to inflation. Investment is the only tool that can help the value of your money grow, allowing you to create wealth in the long run. Therefore, you must invest in line with your financial goals. Your investment options should be based on your goals, risk appetite, and return expectation. As a wise move, review your investment portfolio regularly and alter it as per your current income, risk appetite and family needs.
Manage The Debts With Caution
You can’t say no to debt repayment whatever the market situation may be. Not paying your EMIs on time can spoil your credit score, which will make it harder for you to borrow in the future. So, you must actively manage your debts to avoid default and stay financially fit. Poor debt mismanagement may result in a debt trap or weaken your loan borrowing capacity. A sound debt management plan will help you accomplish your financial goals in a timely manner without compromising on your essential needs.
Finally, do remember all financial decisions should be complemented with financial discipline and consistency. You should consult financial advisers at regular intervals to help make the best money decisions in any situation.
The writer is CEO, BankBazaar.com
BankBazaar.com is India’s leading online marketplace for loans and credit cards.