Money management is a skill that one must learn and if one can learn to manage the money they already have, wealth creation becomes an easy journey. For this, one must learn aspects like accelerating your income, whether it's through an increase in income or a decrease in expenditure, investing, taking advantage through power of compounding.
Being informed about how your money is being used, how much you are saving each month, how much you are investing are all integral factors that you must consider and ensure that you put your money to work for you.
This implies knowing just as much about consolidating debt or setting up a retirement account as you do about improving your credit score, saving and investing your savings or creating an emergency fund. You'll be able to make better judgments if you have a firm grasp on these and other fundamentals.
Here are 10 most common questions about money that you should try to answer as soon as possible: -
1. How to set a realistic budget?
Having a realistic budget is of prime importance. If you fail to make a proper budget, it is going to get very difficult for you to create wealth. A budget can give you a sense of financial control and make it simpler for you to save money for your objectives.
Ideally the 50-20-30 rule works when you want to set a realistic budget. An easy budget is a 50-20-30 plan. You allocate 50% of your income for "necessities," 20% for “savings or debt reduction”, and the remaining 30% for “wants”.
2. Should I start investing?
Undoubtedly, the answer to this question is- Yes! Equity-linked returns have helped people create wealth in the long run and have helped them generate returns which beat inflation. Moreover, dividends earned from various companies act as a source of passive income for investors which help them in using these funds for future needs like children’s education, buying real estate, living a stress-free retirement life and travelling among other life goals.
So, get going. Open a Demat account toady and start investing.
3. What modes of investment should I choose?
As we discussed that investing is one of the best ways to create wealth as it supplements your income, finances your retirement, or even gets you out of a tight spot financially. Above all, investment increases your money, enabling you to reach your financial objectives and gradually boosting your purchasing power.
While investing can help you accumulate wealth, it's important to weigh the risks and potential rewards. Once you have decided your risk appetite, you can choose from a wide range of financial products like equities, mutual funds, ETFs, bonds, derivatives, futures, options, commodities etc.
4. Should I have a financial planner?
Financial planners help you think through your short-, mid-, and long-term financial goals before designing a proper strategy that will help you create wealth in the most affordable and tax-efficient manner possible.
While some people feel confident solving this problem on their own, others believe they could gain more by having a facilitated conversation. Some people seek the advice of a financial planner even when they believe they have handled matters correctly in order to get a second opinion from an expert. This reinstates that fact that having a financial planner is necessary, especially if you cannot spare time to budget, invest and monitor your investments.
5. When and how much should I save for retirement?
As far as retirement fund is concerned, there is no one-size-fits-all but millennials today have started saving for their retirement right from their first pay check. To assess the amount that you will need to retire, you need to consider various factors like at what age you wish to retire? How long will your retirement last? Will you be providing for someone else as well during your retirement?
Once you have the answers to these questions, you can start investing in various financial instruments like stocks, bonds, ETFs, mutual funds, commodities etc. so that you can avail the benefits of compounding.
6. How much Emergency Fund is sufficient?
One of the most crucial resources for creating and maintaining financial stability is an Emergency There may be times when things are going well but suddenly you need some money due to a medical condition, unanticipated expense or any other scenario. In such cases, Emergency Fund comes to your rescue.
Therefore, most financial advisors recommend having three to six months' worth of living expenses set aside. However, your Emergency Fund amount will vary depending on your age, life stage and financial circumstances.
So, one of the most common question that you should ask yourself about managing money is how to start building your Emergency Fund at the earliest.
7. How to pay off debt?
Spending within your means is the most effective approach to pay off debt, especially when you use credit cards. Your goal should be to be able to do this so that you may pay your payments promptly and in full each month and prevent accruing interest on balances that are carried over from one statement period to the next.
Paying off lesser debts first will enable you to see results fast and will give you the motivation to continue if you have many accounts. Gradually, you will be able to zero out all of them each month and have some spare funds which you can use to invest and generate wealth from it.
8. What if I lose my job?
Even though you might not want to think negative and assume that you might become unemployed, it's a good idea to be ready in case you are the breadwinner for your family.
Establish what is and is not necessary for your budget and how far can you fulfil your needs if you are unemployed for some time. This will also help you understand how much cash you need in your emergency fund to cover unforeseen expenses.
This will also help you ascertain how much you need to invest so that you can use the returns generated from your investments in times of need.
9. What should I do to improve my Credit Rating?
The most crucial thing you can do to raise your credit score is to consistently pay all of your bills on time over a certain period of time which could be months or years. Try to settle your outstanding balances at the earliest and reduce your credit utilization. Set limits for new credit cards so that you do not end up overspending.
10. How frequently should I monitor my portfolio?
If you started the investment with wisely chosen stocks or funds, you won't need to check on them frequently. However, it is essential that you keep an eye on and evaluate your portfolio at least once a year. This is because the market is volatile and if your investments are not performing in the desired manner, it is time for you to make changes.
Under all circumstances, one must get adept with money management skills. You can get on the path to personal financial success by asking yourself certain fundamental questions, going back to them sometimes, and changing your answers as and when required.
Also, do not hesitate to seek financial advice to understand in detail about how you should use your income, savings, investing, budgeting and other money management skills.