Setting goals to attain financial freedom
As you move forward into the next financial year, it is an excellent opportunity to examine your financial plans and set goals for this year and beyond. It is also a time to reflect on what worked (or didn't) in the previous year and accordingly create short to long-term goals. Financial planning allows you to be prepared for a variety of scenarios in future, planned and unplanned. Hence, let’s look at a few simple practices that you can follow to ensure financial wellness and freedom.
1. Understand your expenses and plan a fixed budget – The key to financial planning is understanding your current income and expenses, establishing a budget and sticking to it. To attain a clear assessment of your financial situation, the first step is to evaluate the following - your current monthly income sources and expenditures. Your expenditures include regular spending such as house rent, educational fees, utility bills, premiums and EMIs, educational fees etc. Next, make a fixed plan that is in line with your current earnings and outflow and stick to it. A fixed budget places a healthy constraint on your spending while also providing you with a budget that you should aspire to save.
2. Pursue the habit of saving - Saving money, and achieving long-term objectives like pursuing education, buying a home, or retirement are all possible with a strong financial strategy. Depending on your stage of career, current income levels and outflow, get into the habit of regular saving. Set a yearly savings target, and ensure you meet it. With every new year, increase your savings target to ensure you are building a sufficient corpus for the future.
3. Protection for yourself and family - Life and health insurance is a financial safety net that you may rely on in times of need. It is a crucial and priceless instrument. It ensures financial security in the event of a rare life crisis and hence, it must be an imperative part of financial planning. It not only provides financial security, but it also lessens stress later in life, particularly when things go wrong.
4. Build an emergency fund with your surplus - When you have funds set aside for an emergency, it may take weight off your shoulders and make it seem like an inconvenience rather than a financial hardship. Begin with a small amount; the main goal is to get started and slowly keep adding until you have saved enough. Your singular objective should be to save at least three to six months' worth of expenses. If you're the sole breadwinner or your income is unpredictable, you may also want to save more than six months' worth of expenses. Your emergency fund should be in a liquid and in an accessible form always.
5. Build a long-term asset - Building a long-term asset such as investing in a house is a great investment option. It will generate passive income every month and its value will only increase with time, hence, helping you build long-term wealth. In order to buy a house, it is important to have the following - a sizeable down payment that does not affect your current living standards and near-term plans, a good credit score and a comfortable debt-to-income ratio which will help you get a loan with good interest rates.
6. Maintain a healthy credit score - To map out your finances in a wise manner and achieve your long-term goals, a healthy credit score is of utmost importance. It is a crucial element that assesses a person’s financial credibility and increases the likelihood of credit card sanctions and loan approvals. It also suggests that a person is less likely to default, allowing lenders to extend credit and thus, puts the borrower in a favorable position to negotiate higher limits and lower interest rates with potential lenders.
Take time to assess your financial goals, just as you might set fitness or lifestyle goals. To avoid overburdening yourself and keep things running smoothly, set reasonable goals and desires. Remember, achieving financial goals is a step-by-step procedure to be followed one day at a time. When actioned well, financial goals can have a long-term and positive impact on your financial well-being.
Navin Chandani, MD & CEO, CRIF Highmark