Making smart money moves requires a bit of awareness and strategies. Few smart money habits can put us on the right track of being financial healthy.
Here are some smart money moves we can have.
Avoiding Instant Gratification and impulse purchases:
SALE, SALE and more SALES more and more e-commerce sites offering bigger discounts to get a share of our wallet.
Restrict spending by setting a self spending limit. Find appropriate methods to save, park and invest money. Even if it’s a small amount, bundle them up and save. When you avoid instant gratification and save money you are giving your money a chance to accumulate and grow. When you are able to resist your ‘I want it right now’ temptation, you have successfully overcome your first obstacle towards wealth creation.
Don’t buy term plan to cover post retirement years
Term plans are income replacement tool for the financial dependents. Therefore, the insurance cover is not required after retirement. Buying insurance cover beyond retirement age will increase premium.
Maintain credit score
Ensure paying credit card bill, EMIs and utility bills before due date to maintain credit score. Poor credit score may in turn translate into higher cost of borrowing and stiffer terms when we need to take loans. Improvement of credit score may take long time. A low risk customer gets low interest rate loans and thus saves on EMIs. The insurance company is not liable to provide cover if the premium is not paid or renewed on time. leaving open to risk of shouldering large expenses and dependents remain unprotected. Also, there are cost and penalties that one has to bear for the delayed payments and will inflate the dues. Some benefits like no claim bonus and reward points on credit cards may also be forfeited. Credit card company may lower credit limits. This may impact the long term financial situation. Full payment of credit card can also be automated to avoid rollover of the dues. Keep contact details updated and activate payment due date alerts to remind.
Buy a longer term health insurance
Health insurance premium increases when age crosses predetermined age slabs. We can save on insurance premium by paying premium for more than one year thus locking the premium into current slab rate. We can also get benefit of lump sum payment discount.
Don’t surrender your ULIP plan within initial four years
Surrender charges are applicable till initial four years of ULIP plans. Hence surrendering after four year will save surrender charges. As also the charges other than mortality charges decrease over period of time.
Give auto Debit bank mandates
Give auto debit mandates to bank for utility bills so that the bill payment due dates are not missed and charges can be avoided. Activate payment due date alerts to remind.
Payoff expensive and bad loans on first priority
When paying off the loan give priorities to higher interest loans as also bad loans like credit card dues before closing goods loans such as home loans etc.
Buy an Asset that grows in value over a time.
Buy appreciating Assets say house, gold, shares from your saving. The loan taken for the purchase of these asset is called good loans. Avoid taking loan for lifestyle expenses and depreciating assets like high end vehicles, costly phones since the interest will add to the cost of purchase. With these purchase we are not creating a appreciating asset hence may be categorised as spending. The loan will reduce our net worth. Therefore the loan taken for the same is called bad loans.
Choose right Asset Allocation.
Invest in the instrument that will give you return more than the rate of inflation otherwise the value of the wealth may erode over a period of time. Allocate the investments over assets like debt and Equity whose return can beat inflation.
Automated investments through standing instructions or ECS to bank , be it mutual fund SIP or RD will keep check on overspending temptations upon the credit of income amount into the bank.
Follow and stick to budget
Budget will differentiate want from needs. While needs include necessities like house hold expenses, basic expenses for maintaining the present lifestyle, want includes subjective choices of the individuals. It is necessary to segregate these two while preparing budget.
Make budget to allocate specific percentages of your income for your necessities, wants, savings, self education, charities. This should be practiced beginning from the day of your first earning. transfer these allocations over different instruments through automated options. Though the percentage remain same the amount will change with the change in income levels.
Keep track of daily expenses no matter how small it is. Once you identify the different expenses it would be easy to cut the overspending. Cutting these small avoidable spends can help you in building big corpus over a period of time by investing with power of compounding.
Avoid following affluent spender friend and families in spending. this will avoid debt trap at the cost of achievement of financial goals.
Set goals for your wants
Set a goal with time period for your wants. Save and invest, in appropriate instrument, certain amount every month for a period matching the goal time horizon separately for short term and long term.
The writer is a chartered financial analyst (ICFAI).
Wondering how to find out right move or simply need help implementing the move, you may find it helpful to talk to a financial adviser. Here, it is crucial to find the right adviser.
We at FinACTS Solutions can help you with our free personalised planning services.