How to make money: Earning high salary, but still worried? 6 power points to banish all fears
Once you identify income and expenses, you can project your financial requirements for the future. There are several online tools you can use to predict the corpus needed to maintain your standard of living. You can also factor in inflation and possible changes in your outflows linked with your life goals and gauge the amount needed for retirement.
Markets at all-time highs but equity Mutual Funds see rising outflows All those facing the conundrum of running out of money in spite of earning well, take a second look at your money management skills. With a few simple measures, you can make sure that you have enough financial resources at your disposal to never run out of money at any point in time.
1. Keep track of income and expenses
Keeping a check on your daily expenses might sound tedious, but it is the sure-shot way to avoid unnecessary outflows. It is a way to make you more mindful of how you spend your money. There are several apps available for tracking your daily expenses. An analysis of the outflows at the end of each month, will help you to identify loopholes in your budget. By taking corrective measures, you can cut out all avoidable expenses to free more resources for gainful employment.
2. Project future requirements
Once you identify income and expenses, you can project your financial requirements for the future. There are several online tools you can use to predict the corpus needed to maintain your standard of living. You can also factor in inflation and possible changes in your outflows linked with your life goals and gauge the amount needed for retirement.
3. Always prioritise savings
We all function on a limited income, but have unlimited aspirations. By making a list of priorities, we can put our limited resources to the best possible use.
Make ‘saving’ as the first to-do item on your list of priorities. As soon as you receive your salary direct a significant portion of it towards savings. Ideally, 20% of your income should be earmarked as savings. Meet all your other expenses from the remaining income. You may find that after savings and fulfilling expenses like rent, bills, groceries, etc, you are left with little money for your discretionary spends like movies, shopping, dinners, etc. The best way to ensure that you indulge in these activities without feeling stretched out financially, is by chalking a calendar of your social events. If in a particular month you want to go for fancy dinners and movies, you can shift activities like shopping or weekend trips to next month.
4. Saving is not enough
Investing your savings in growth instruments is equally crucial to building a healthy corpus. As a thumb rule, allocate a percentage of funds equal to 100 minus your age to equities. Equity has historically offered around 15-16% CAGR over 15-20 year time period and is the best investment tool for medium- to long-term goals. You can also explore the mutual funds route to participate in equities. This will help you to avail benefits of diversification. For short-term needs, you can opt for liquid/debt instruments and fixed deposits.
5. The magic of compounding
Systematic Investment Plans have made it possible for investors to bring discipline in their investment, while making the magic of compounding work in their favor. If you make a SIP of Rs 1,000 per month, in an equity MF that offers about 12% annual returns, you will have a corpus of Rs 35.3 lakh after 30 years. Even if you are earnings are not substantial, by starting a SIP early on, you can accumulate huge wealth over a long-term period.
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6. Build emergency fund
Any emergency can act as a huge drain on your resources. But if you build a contingency fund, separate from your savings and investments, you will have a cushion to tide over such situations. This fund should, ideally, be enough sustain you for at least three months, even if there are no inflows. To build a contingency fund, give an auto instruction to direct a certain sum from your salary account every month to a recurring deposit, which will lock in your money for a fixed time frame. You can also invest in instruments such as short-term debt funds or liquid funds.
By Arun Thukral
(The writer is MD & CEO, Axis Securities)
Source: DNA Money
