The pandemic has been a great eye-opener to the uncertainties that life can throw at us and how unprepared we are to tide through such difficult times. The resultant economic slowdown saw many of us suffer a job loss or huge salary cuts. There is no better time to discuss financial discipline than now since it is the need of the hour.
Financial discipline is a life skill that requires constant practice and commitment to goals. The reward is a financially secure comfortable life that is worth all the sacrifices.
How to inculcate financial discipline:
1. Follow a budgeting rule: A universal budgeting rule is the 50-30-20 rule that can help you to manage your money effectively, in a simple and sustainable way. The rule is to divide your after taxes salary into 20% savings, 30% wants and 50% needs. At the end of each month, plan out the expenses for the coming month i.e. groceries, phone & electricity bills, rent, transportation etc. There are a number of applications that help plan your expenses for the month, track your spending and provide you with the monthly expenditure report that will help you understand how successful you have been in staying within budget. Always keep your needs before your wants and try not to touch your savings.
2. Make your money work for you: Invest in good investment plans like Public provident fund, Equity linked savings schemes, mutual funds. Guidance from a trusted financial advisor can help identify investment plans that align with your needs. Virtual financial advisors on digital banking platforms can help you plan your finances, recommend investment plans tailored to your needs/specifications and help keep track of investments. Invest for the long term, have realistic expectations and patience is key.
3. Curb impulse buying: Easy online shopping and peer pressure are the triggers for our impulsive purchases. In our attempt to keep up with trends or peers we spend over things we really don’t need and may never use. You may think that by buying at a sale you have made a good bargain but in fact the sale has prompted you to spend more over things you would not have bought otherwise.
4. Reward for Restrain: Promise yourself a celebratory reward for the financial goals you achieve. This would be a motivation to stick to your goals and restrain from unnecessary expenses.
5. Use credit card to your advantage: Credit cards have a bad reputation as a debt builder but if used wisely you can avail various reward schemes aligned to your credit card. Make your payments using a credit card but ensure to pay the credit on time to avoid paying huge interests and to create a good credit record. A good credit record is beneficial when opting for loans.
6. Work towards a goal: Set yourself a larger goal like early retirement, following one's passion, giving yourself a year off to pursue a hobby or travel. With a defined goal in sight it's easier to work towards achieving financial stability that would help you get to your big dream.
7. Invest in a side gig: Have a second source of income or a fallback career that can help tide through hard times. It could be a hobby that you enjoy like photography, art, gardening, cooking. There are a number outlets online where you can find freelance gigs fitting your profile/hobby. The pandemic has already created a new wave of entrepreneurs who have tapped into their talent to create a new source of income.
Financial discipline is a long but rewarding journey that requires a lot of commitment from the practitioner. Celebrate your successes and learn from your failures. Most importantly keep working towards your goal and be patient.
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