This is a follow-up on the procrastination article I had written. But put into the perspective of 7 things I should have done sooner to gain control of my financial wellbeing. Here are things that I delayed doing and it cost me a pretty penny. The earlier you put these things in place the more of a head start you’ll get.
1. Look at life from a cashflow perspective
As we start aging, we start taking things for granted. Our health, our spouse, our jobs, our incomes. But things are never constant in life. We live in a dynamic situation and so you need to keep on top of things. One of the results of the complacency towards income is we start viewing life on the basis of expected income. Rather than on cashflow. What do I mean by this? Pay attention not only to how much money is coming in but when it is coming in. Why?. If salary is your only source of income you can never tell when your income will stop. Even if you’re expecting a million dollars in the bank tomorrow, but your broke today and have to starve for food. The money due to hit your account tomorrow is of no use to you. So keep an eye on your cashflow. How much is coming in, when it’s coming in. How much you have to pay and when you have to pay for it. If at any time your total cash in hand runs into negative your in trouble.
2. Understand and file taxes (save on taxes)
This is an often feared, misunderstood and neglected sphere of your financial life. You hear of the income tax department raiding people and raising cases of disproportionate assets. Scare the crap out of you, doesn’t it? Don’t push your head in the sand with regard to taxes. It’s better for you to learn understand and manage your taxes properly. Not only will you end up paying lower taxes each year. But if you plan it out properly the interest generated will also be tax-free in your hands. Start reading more and understand the taxation exemptions and taxation of returns. The other benefit is not running foul of the tax authorities. If you have a documented history of your income over the years its easier to justify your net worth. This also builds up your financial history making it easier for you to access credit from formalised institutions. A lot of credit card companies, NBFCs (Non-banking Financial Companies) and banks will need a few years tax returns to fund you. There’s another more somber benefit of filing your taxes. In case there is ever a case of accidental death. You can seek compensation under the Motor vehicles act. But you need to provide proof of income. Your ITRs can prove immensely helpful in such a situation. So file your taxes in time spare yourself the fine and build the income history it’s important.
3. Set aside money for emergencies
You can’t think very well when your being chased by a tiger. In the same way, you can’t really make good financial choices when you’re constantly under pressure to pay the bills. Give yourself some breathing space by building a buffer. I would recommend a buffer of at least 6 months’ worth of your expenses in an accessible form. Are your expenses ridiculously high? Well, you here are 5 ways that you can cut your expenses. The lower your expenses the smaller the kitty you need and the easier it becomes to fill up your emergency fund. Keep this money liquid. You can look at FDs, liquid funds things you can access quickly.
4. Take health insurance
Start early on this one. The later you start in life on getting onto a plan the more expensive it is. Additionally, most companies don’t cover any pre existing diseases you have for at least 2 years. So the earlier your covered in life the better the chances you’ll be covered when you need it. Considering the state of healthcare in India, I think its not the best idea to rely purely on the government to help you out here. Be proactive. The premiums are much more affordable when your young. But don’t go overboard on the coverage amount. Here are some tips on how to pick a good health insurance plan.
5. Look at investment returns that beat inflation
Having your money invested is good. But don’t keep all your funds in low return yielding investments. Balance between having your money liquid and having it invested in stuff that beats inflation. If your not doing this then your actually loosing money. Investing is as important a part of getting to FIRE as saving. Secondly don’t procrastinate. This is one case that its better to start acting rather than to endlessly wait to figure out that perfect investment strategy. Start investing and learning simultaneously. The earlier you start the better it is for you. Not only do you get the advantage of compounding but also you have greater flexibility to make mistakes. Think about it its easier for you to make a mistake when your 20 loose some money and learn a lesson. Rather than to start risking your entire nest egg at 59 when your just about to retire.
6. Start investing in the stock market
Getting over my fear of stock investing has been a great battle for me. Especially after hearing lots of “horror“ stories from “traders”. Well, you don’t need to become a trader. You can take advantage of products like mutual funds or index ETFs to invest in the market. At the same time, you can also start learning the ropes of trading if you like. But like all skills, it takes time and patience to deliver. But having exposure to stocks especially in India is a must-have weapon in your arsenal to get to FIRE
7. Invest your money better
Ahh the proverbial “I think I’m investing a lot of money issue” Turns out most of the time your not. Even among the savers I know . A lot of people will just leave the money in the savings bank account and I’m talking about life time saving. 50- 60lakh rupees. For starters find a sweep account at the very least. You’ll be surprised by how much your leaving on the table with even a 1% difference at that size of a nest egg.
Most savings accounts pay out at about 4% an annum. So if you have 50L sitting in an account your interest on it is INR 2 L per annum. At 5% its 2.5 Lan annum. At 6% ITS 3L an annum and at 7% its 3.5L per annum. Most banks will give you the facility fo a sweep account. Just enable that and your funds are earning a 1.5L additional in a year. That’s over 10K a month. Granted that’s not beating inflation but don’t leave such opportunities on the table.
Get that money working for you asap. You expended a lot of time and energy to earn those bucks, so get them to start making you some more. The more of your money that’s invested properly and delivering returns, the less you have to spend time in earning money through your efforts.
So what have you done to take control of your finances? Are you happy with the way your money is working for you?. What does your journey to FI look like? Share your views with us in the comments section.