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Are you a young earner at the start of your career looking to kickstart your financial journey? You may consider setting financial freedom as your goal. It has enough savings and investments to focus on the quality of life without worrying about daily expenses.
You may find many people working throughout their life and never achieving financial freedom. It could be because of the burden of loans, excess spending or costly hospitalisation. However, you may focus on kickstarting your financial journey by being aware of the financial pitfalls. It helps you avoid them and attain financial freedom at a younger age.
Follow these tips to kickstart your financial journey.
It is crucial that you set short, medium and long-term financial goals if you seek to attain financial freedom at an early age. For example, you may have a long-term financial goal to retire at 50.
You can achieve your financial goals only if you clearly define them and plan to achieve these goals. You may consider setting financial mileposts at uniform intervals depending on your current age.
You could make a monthly household budget and stick to it. It helps if you account for every rupee earned and spent in this budget. You must calculate monthly income where you write down all sources of income.
You can write down all fixed expenses such as rent, grocery bill and loan EMIs. It helps determine discretionary expenses to get an accurate picture of the costs when you make your budget.
You then subtract expenses from income to calculate how much you can save and invest every month. You may have to monitor your budget regularly and make minor adjustments if necessary.
You can get rid of unnecessary loans before you start investing your money. For example, you must clearly define a good loan and a bad loan. You may avail of a home loan to buy a house which is an asset. Moreover, you also get tax benefits if you take a home loan.
However, you may avoid availing of high-interest loans such as personal loans and credit card debt for discretionary spending. You may struggle with the repayments and land in a loan trap if you avail many high-interest loans.
You could consider getting rid of any high-interest loans before you start investing your money. Otherwise, all your returns would be swallowed up in high-interest loan repayments.
You must invest in the right financial products to achieve your financial goals based on risk appetite. For example, you could invest in equity funds if you are an aggressive investor. However, you could put money in PPF, bank fixed deposits, debt mutual funds or NSC if you are a conservative investor.
You must select the investments that can beat inflation over the long run. For example, PPF or NSC may offer a higher return than inflation over the long run if you are a conservative investor.
However, aggressive investors may opt for equity funds such as ELSS, large-cap funds and even the riskier mid-cap, multi-cap and sector funds if they match your risk profile. You could invest in equity funds through a systematic investment plan or SIP, where you put fixed amounts regularly in a mutual fund scheme of your choice.
You may consider availing of a health insurance plan to protect against costly hospitalisation. It helps if you avail of a family floater health insurance plan if you are newly married or starting a family. It covers the entire family under a single plan against hospitalisation costs.
You can avail of a term life insurance plan that offers a high mortality cover at a low premium. It covers the policyholders family against an untimely demise. However, you don’t get any money if you survive the term of the plan.
You must never mix insurance and investment. You can avail term life plan because it offers mortality cover, which is the main purpose of providing life insurance. You save on premiums compared to ULIPs, money-back plans and endowment life policies, and you could invest in suitable financial products depending on your investment objectives and risk profile.