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How to be financially happy

5 steps to take control of your finances.

“Money can’t buy you happiness but poverty can’t buy anything”

We all know that money is important and it builds a solid foundation for our life. But money tends to fly.  Hence, it becomes important to take control of money or else it will pull the strings and we will be the puppet.  

We don’t want that to happen and here’s five simple points that can help you to take control of your finances and be financially happy:

Save before spending:

We have a preconceived notion that we need a lot of money to begin saving. We tell it to ourselves that we will start saving once our salary increases. But it doesn’t work that way. It is only when you save small amount of money that you can save or have the urge to save a bigger amount. World famous investor Warren Buffet once said “Do not save what is left after spending; instead spend what is left after saving.” It is easy to fall into the trap of buying things that we don’t require to show it to people who don’t matter. Hence, it is nearly impossible to save money if you take a very passive role towards saving it. Take the proactive role in saving money by focusing on saving first and then spending. Practicing this can lead to a fundamental shift in your financial life and your attitude towards money.

One of the easiest ways to inculcate the habit of saving is to open a savings account just for saving. You can transfer a fixed amount every month to the savings account and watch your money grow. This will make you comfortable to invest in high yielding asset classes such as equity mutual funds. 

Even investing just Rs.40 per day can help you build a substantial sum of money in the long run. If you invest in an asset class that has the potential to give 12% on an average, and you increase the investment amount by at least 10% per year. Just by doing this, your corpus will grow to nearly Rs. 24 lakhs in 20 years and this is the just the tip of iceberg.   

Save or invest at least 20% of your income:

Life is not just about working and paying bills, it is also about designing our own life. One way to recreate our life is by investing at least 20% of our net income. This will help us to fulfil our financial goals. Investing 20% may not be easy at first but the key here is to start somewhere. To invest 20% of your income, you may have to sacrifice a few things such as buying unnecessary things, eating out, going out with your friends etc. 

“If you don’t sacrifice for what you want, what you want becomes the sacrifice.”

Jay Shetty, motivational speaker

If that wasn’t enough to nudge you to save 20% of your net income, maybe numbers will put it into perspective.

Let us take for example that you are earning Rs.30,000 a month. 20% of your monthly salary is Rs.6,000. Let us also assume that you are increasing the investment amount per year by 10% and the average rate of return given by the instrument is at 12%. At the end of 20 years, your investment value will be over Rs.1 crore.  However, if you don’t want to invest in equities, you can save the same amount in a recurring account. While the returns may not be attractive as the equity mutual funds, recurring deposits are safer than equity mutual funds. 

Not more than 25% on rent:

The cost of living especially in major cities is huge and it constitutes a sizeable sum of our income. Experts recommend that the rent should not be more than 25% of the net income. If you believe that the rent is exorbitant and the place you are staying in does not inspire or motivate you, you can look at shifting to a smaller house. Instead of taking a fully furnished house, you can save rent by shifting to a semi furnished house that has all the essentials in place.  

Invest 15-20% in yourself:  

Investing in oneself should be on top of everyone’s priority list. It consists of education, visiting seminars and conferences, buying books or audio books, gym membership, hiring a coach and anything that is likely to make us happy and increase our earning potential. There is a common saying that investment in oneself gives the highest interest. Investing in yourself will help you to grow your skillset which increases your earning potential as you are now becoming an important asset for the company. Investing in yourself can also help in your side hustle which can help you establish your business.

Not more than 5% on vacations and 10% on entertainment:

Vacations and entertainment are important part of everyone’s life. It helps us from burning out and making sure that our axes are sharpen at regular intervals. However, many of us tend to overspend on vacations and entertainment thinking that we deserve it. It may not be very healthy for your finances. Hence, it is recommended that spending limit on vacations and entertainment should be capped at 5% and 10% respectively. However, if you love travelling and it adds meaningful value to your life than you should start saving for your travel needs.

Taking control of our finances may seem like a daunting task. All it takes the right approach, mindset and knowledge to manage your finances like a pro. All the best!



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