How to Manage Your Money? Tips to Draw a Financial Plan

It is well known that millennials struggle to manage their finances efficiently. Despite earning a reasonable sum, they still live from paycheck to paycheck. This leaves them with no opportunity to create wealth over time. In this article, we have covered the following tips to have a robust financial plan:

Implement the rule of 50:30:20 in your finances

The best way to ensure that you save some amount of money from your income every month is by following the rule of 50:30:20. This rule says that you need to utilise up to 50% of your income towards needs such as groceries and accommodation, up to 30% towards wants such as new apparel and dining out, while the remaining 20% must be saved. The 20% of your income you save must be used to build an emergency corpus, which is at least six times your monthly income. Once you have created an emergency fund, you can start investing to make your future better 

Cut down on unnecessary expenses

It would be best to eliminate unwanted expenses. First, you have to analyse your spending trend and note down the expenses you feel could be avoided. You can consider minimising the budget towards wants and utilise it towards savings and investments. You may consider installing apps that track your spending and provide you with regular reports. 

Invest as per your risk tolerance

Investing your money is the only way to make your future better. You have to assess your risk tolerance and choose investments that fall within your risk tolerance level. If you are not willing to take any risk, you may invest in bank deposits, government saving schemes, debt funds such as liquid and short-term funds, and so on. If you are ready to take some risk, you can invest in hybrid funds and corporate bonds. In case you are an aggressive investor, you may consider investing in stocks and equity funds. 

Don’t rely entirely on others’ advice

You have to base your investment decision on your requirements and risk tolerance. It is never advisable to invest in an avenue just because your friend or relative recommends it. An investment suiting your friend may not necessarily serve you. If you find it difficult to shortlist investments on your own, you may consider consulting a financial advisor. 

Conclusion

It is crucial to have a sound financial plan. Implementing the rule of 50:30:20 in your finances, minimising unnecessary expenses, having an emergency fund and investing as per your risk tolerance are the major components of a robust financial plan.