5 Financial Decisions you need to make today
They teach us how to differentiate between organic and inorganic compounds in school but they forget to teach us the most important thing we as adults will need to know. Money. Savings. Finance. Tax. So here is my attempt to teach you the basics of it. These 5 financial decisions will help you get on track with financial well-being.
I never knew about the different savings instruments till I turned 23. I come from a middle-class family that was not very keen on saving and lived paycheck to paycheck. So by the time I started my job at 21, all I knew about savings was RDs and FDs. And that too mostly because my mom tried to save a little of what she earned in RDs(at the post office). Recurring Deposits that spanned five years and did not increase the capital by much.
I did not know about taxation or even the magic of compounding until I started my first SIP and used a SIP calculator to figure out how much money I would have if I had a SIP of 5000 INR per month.
Don’t be like me and learn the basics of finance, be it saving and investing. Also, important is taxation. This will help you save a few thousand every year when you file your returns. Financial decisions require discipline and planning but are not hard to make once you get the groove of it.
“Do not save what is left after spending; instead spend what is left after saving.”
― Warren Buffett
Save first, expense later
Set aside 40% of your monthly income as savings. The first thing I do when I get my salary is to send a certain amount of money to another savings account. I don’t use a debit card for that account and all my SIPs and investments are taken from there.
Saving at the beginning of the month ensures you are not tempted to spend on unnecessary things. This usually is used as a stress buster on weekends or as a pick-me-up. Spending gives us a dopamine hit and makes us feel good factor after a shopping spree it can quickly become addictive. So do the smart thing and save on your payday.
Automate your bills
Automating bills have saved me so much time and energy. I automate everything from rent to my phone bills. You can create Standing Instructions in your bank account for your rent for around 6–8 months. I do it for 11 months because that’s when the rent changes(increases) where I live.
You can automate your bills either on your credit card or your savings account for utilities like electricity, internet, and phone. This will help avoid the anxiety of following different due dates and makes you remain prompt in paying bills.
If you are someone who likes paying all the bills on the 5th of the month, that’s great for you. But some bills are generated in the middle of the month and in those cases tracking them becomes harder.
Start a SIP Mutual Fund
SIP stands for Systemic Investment Plan and allows you to set aside a certain amount of money in Mutual Funds every month. When I started out I did not know anything about Mutual Funds or the Stock Market so I chose Scripbox which uses an algorithm to choose the best funds for you. I invest around 25000 INR per month in SIPs. Consider this as a long-term investment that you won’t be withdrawing for years.
Mutual funds can also help save you taxes under Section 80C(relevant to India). ELSS (Equity Linked Savings Scheme) which has a lockdown period of 3 years can get you a tax exemption on up to 1,50,000 INR per year. So you save around 30000–45000 INR per year depending on the tax bracket you come under.
Build an emergency fund
Life can throw in a curveball anytime it wants to. So be ready for it and build an emergency fund. Your emergency fund should cover your monthly expenses like rent, utilities, food, etc., and help you sail through for 6 months without any income. Set aside that amount and don’t touch it unless absolutely necessary.
Keep an expense record
The art of budgeting expenses does not come easily to everyone. The one sure way of doing that is to start an expense record. A simple excel sheet where you list down what you spend money on every month will help you understand where you spend most of your money on. This also helps instill discipline and cut down unnecessary expenses when you review this periodically.
For example, if you are spending a lot of money every month of shopping and wondering where all your money is going, it will be easier to track down when you see this expense record.
Here is one book that I would recommend to understand more about money and spending.
Like to read? Check out My Reading List : Books that made my 2020 better .
