This article has been contributed by Rinku Suchanti, Co-founder, FIKAA.
Women are equal and better than men could be a highly debatable topic. But there is one arena where even the most egalitarian-minded woman is likely to admit defeat and that is “finance”. Particularly managing one’s own finances. Personal Finance is like a nine-headed monster; the very name elicits shivers in the bravest heart. To emerge victorious, you have to be fully equipped with the right arsenal to conquer it. There are, of course, qualified money managers and the like who can guide you for a hefty fee. However, women do not necessarily need expensive wealth managers to handle their finances. They can follow a well-proven step-by-step strategy to successfully manage their money in a well-informed manner, and come out a winner!
1. Add All Incomes
One accrues income from various different sources during the month. It could be a salary, rental income, dividend payout, or even a side hustle. Anything that adds to your bank balance can be considered earnings for the period.
2. Arrive At Your Net Income
Net income is how much money you actually have after taxes and other mandatory deductions. You have to be aware that gross income is not what is available to you to spend. If that has been taken as your expendable income, you will soon be saddled with debt.
3. Track Your Expenses
This is done in two parts. Daily expenses, however small, like groceries and entertainment, should be added diligently every day. All monthly recurring costs, like rent and subscriptions, should also be considered. Combine all of them, and it will give a clear picture of your actual spending.
4. Make a Budget
This means allocating 50% of your net income to needs – like rent and food, 30% to wants – like dining out and impulse purchases, and 20% to savings and investments. Only by making a realistic budget will you be able to adhere to it and accumulate any savings. A budget is like the track of a train on your journey towards better financial management.
5. Set Short-Term and Long-Term Goals
If we are to have significant control over our finances, we must have some goals too. We need goals to keep us motivated to save and stay within our budget. As the name suggests, short-term goals are to be achieved in 1–3 years. These can be for a vacation or for starting an emergency fund. Long-term goals are those we target to invest for over 5–10 years. Planning for your child’s education or your own retirement could be examples of long-term goals.
6. Plan For These Goals
Once the goals are set, we need to allocate part of the savings to short-term goals and part to long-term goals. Short-term investments require regular monitoring and adjustments to keep them directed to meet these goals. For long-term goals, one has to assess their risk tolerance and then invest in diversified asset classes for the best results. Again, these investments need to be reviewed periodically to keep them on track.
7. Create an Emergency Fund
It is ideal to put aside six times your income if you are under 30 years old, and 12 times your income if you are over 30 years old. Keep this emergency fund separate from your main current account, possibly in a separate savings account where you can easily access it in times of need. This is one saving where we do not emphasize on the returns but on the ease of availability of the money when required for medical reasons or loss of employment.
8. Plan to Be Debt-Free
A large part of sound financial health is contributed by being debt-free. Debts can be in the form of loans, unpaid bills, or credit card bills. If you have any debts, make a list with the exact amounts, rate of interest, and a repayment schedule. Calculate how much you can afford to repay each month. Different methods of prioritizing the repayment could be according to a higher rate of interest or urgency.
9. Research Investment Options
When you have control over all aspects of your finances, it is time to figure out which type of investment works for you. There are a few factors to consider before we decide – returns expected from the investment, risk tolerance and whether we are investing for the long term or the short term. Once we have a clarity on that, there are a multitude of asset classes to choose from – shares, mutual funds, bonds, property, commodities like gold and silver, etc. Each has its pros and cons. Suitability is an extremely personal choice as per individual circumstances and preferences. Perhaps the best thing to do is diversify and allocate your savings to a mix of assets according to your inclination.
Choose the Platform to Invest
With so many different modes of investing available these days, one can choose a combination of brokerage outfits, property agents, and investment apps available. Sometimes it becomes difficult to decide who to trust. For this, one can rely on an investment platform that provides data-driven recommendations of Mutual Funds based on age and risk profile. AI-enabled platforms can help you choose the best options by going through lakhs of permutations! What’s more, one can invest in Digital Gold starting as low as INR 100.
If you have been reading carefully, now you know exactly how to be in charge of your Personal Finances. These are very practical and simple steps to implement in your financial journey, by which a better grip can be achieved on money matters. Only when you put all this into practice can you know how it works? Then, assuredly, you are on your way to becoming financially independent. Effective control over one’s money liberates in a way nothing else does.
Muskaan Kapoor
