Financial security is extremely important for everyone. Not just for living a comfortable life but it also gives you the freedom to follow your dream and passion.
One needs to start early though. The earlier you start, the sooner you are able to start to enjoy that sense of freedom. In this article we will talk about how on can achieve that by pursing these 8 Financial Goals before you reach 40.
ASSESS YOUR PRESENT PERSONAL FINANCIAL PROFILE
The first step to start an journey is to know where one is. Financial planning requires tremendous discipline. These are few questions you may want to ask yourself and remember, the only one you have to be honest with is yourself.
What is your risk profile?
Does spending money give you pleasure?
Have you got good saving habits?
When you see something you really want, do you justify to yourself how much you deserve it even though you can’t afford it?
Do you like credit cards?
Are you ever able to pay your credit cards off in full every month?
WRITE DOWN YOUR GOALS
Now, let's see where you want to be. Divide your financial goals in 3 categories.
Short Term - 18 to 30 months
Medium Term - 5 to 8 years
Long Term - More than 8 years
Of course, these time frames will vary by 5% to 10% from individual to individual. But as a rule of thumb, we recommend to go with these time frames.
What it does is, it put a lot of things in your life in perspective and helps you prioritize. For example, once to write down your financial goals keeping these time frames in mind, you might end up moving your "car upgrade" to Medium Term from Short Term.
TRACK EXPENSES
It's your money. You work very hard for it. Therefore, it's only logical that you keep a track of how you are spending it.
As the saying goes, you always make better decisions when you are well informed. When you start tracking you expenses, you'll know where your priorities have been so far clearly. That'll certainly help you make either re-prioritize or give you the assurance that you are not wasting your money.
More importantly, are you spending enough money on investments which will help you make more money?
IMPULSE SPENDING NEVER HELPS
Close to 15% of what anyone earns in a month goes into buying things which are not absolutely needed. All the buying or spending does is gives the person instant gratification; a feel good factor for that moment. It could buy a dress you do not need immediately or it could be dining in a fancy restaurant for no apparent reason.
We are not saying it is wrong to do so. All we are saying is that it needs to be minimized.
We all know, money makes money. Imagine if you add up all that 15% and start investing, how much more money you will have. Try doing the math.
MANAGE YOUR DEBT
General rule of thumb is, "Never borrow money to buy something which depreciates in value". It should always be for something which appreciates in value over a period of time. However you still have to pay the debt of and if you don’t have a plan to manage your debt, then interest will compound and your debt will triple.
Borrowing to buy a house or for further education - Good Debt
Borrowing to buy a TV or a mobile phone - Bad Debt . It gets worse when you buy it on a credit card.
Get rid of all your Bad Debt at the earliest. And yes, avoid using credit card at all times. Most people use credit card for credit. However, it should only be used for convenience.
GET INSURANCE
Life, as beautiful as it is, can also be sometimes extremely unpredictable. One cannot predict anything ever in life however I can be prepared for any unforeseen circumstance.
Always be prepared for Health and Life.
Should ever an unfortunate health issue arise with you or your family member, you should always have enough cover on your Health Insurance policy to sail you out of that difficult situation. Medical treatments and hospitals can be an expensive affair. Make sure your family and you have a good Health insurance policy.
Not just health, you should also be covered for life. Especially, if you have dependents in your family. In your absence, your family will need all the financial help they can get. Definitely, get a Term Insurance for yourself and your family.
PLAN FOR RETIREMENT
Retirement can be tricky. Planning for it is just as important. Throughout your working life, you income keeps increasing presumably. Therefore, so does your lifestyle.
The moment you retire, all that stops. Therefore, you need to have enough investments which keep giving you income to live just the same comfortable life.
To conclude, if you start doing all of these 8 things today, you'll be heading to a much healthier financial life in future.
Do give us your feedback.
Ankur Sinha
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