Managing your Finances article series: Part 2: The Journey.
This is part 2 of the Managing your Finances article series, if you have not read part 1, then you can read it here, after which you can resume this article.
If you are sorted with your current financial situation and ready to start the journey then congratulations!!! You are way ahead of most of the people out there so fasten your seatbelts and start the journey…
Prepare an investment plan
We are ready to start the journey, and this step is like our itinerary. Prepare your investment plan, it simply means making a list of:
- All your income sources
- All expenses
- The money you can save
- The money you can take risks with.
Once you have all these things listed
First, see if you can cut down on expenses (you must have done this while fixing your holes but still try to dive deeper if possible), you can consider taking public transport instead of taking your own vehicle. You can make your own coffee instead of buying it every day from Starbucks or any other coffee shop, these are simple steps and if you do not avoid to avoid the expenses, that’s alright.
The money you can save should go to the different investment aids, don’t let it sit idle in your bank account.
The money you can take risks with can go to some risky investment options, this is the money you are ok with losing but that does not mean that you would invest in some scheme without any proper backing. This money can go into volatile stocks or some risky index funds. Remember, this money is for taking risks and not for burning.
Understand the investment tools.
You have a simple plan ready, now it’s time to take action on that plan. In this step, we will explore various investment opportunities like Mutual Funds, Stocks, Government Bonds, Bank FDs, ETFs, and so on.
There are plenty of such investment tools available and that doesn't mean that you should try all of these. Do some research, pick some safe tools, learn about them, understand how these tools work, and then start with the investments.
After finalizing the right investment tools, the next step is to pick the individual companies i.e.:
If you want to invest in stocks, then identify the right stocks, like stocks providing dividends, stocks having a great position in the market, and stocks whose company’s financials are clear, and have a steady history in the stock market.
If you want to invest in mutual funds then understand the difference between various mutual funds, understand the terms like Exit Load, expense ratio, and the Lock-in period, and based on these factors pick a few funds and start with those.
Understand and Use the benefits.
Here I am talking about benefits related to investment tools, for example, if you are invested in some tax-saving (ELSS) funds then don’t forget to declare those while filing the Income tax returns to claim the benefits. Similarly don’t forget to claim tax benefits on the loss-making stocks.
Apart from tax benefits, there are some other benefits not specific to stocks or mutual funds but can provide you some financial advantage, benefits like:
- Some Companies provide some special offers to the stockholders, look for those offers and try to claim those if possible.
- Use credit cards. Credit Cards are extremely useful if you are self-disciplined with your spending. You can use a credit card for bill payments and grocery shopping and claim benefits like reward points, improved credit score, and some benefits that are specific to your credit card like Free Movie Tickets, offers on Air Travel, offers on Fuel, airport lounge access but be careful while using the credit card and make sure that you are making the credit card bill payments on time.
Trust the process.
Financial freedom can not be achieved quickly in a couple of years, it’s a process, and it takes time but your responsibility is to trust the process, and even if the returns look like peanuts right now, the compound benefits are enormous, so just trust the process, believe the research and the study that you did while making the financial decisions.
That was part 2 of the series, you may now continue with part 3 of this series.