A Beginner’s Guide to Making Smart Financial Decisions
Planning personal finances is crucial for building a huge corpus. However, beginners find it difficult to save and invest money as they don’t know how to make good financial decisions.
In this article, we will explain things that beginners need to keep in mind while making financial decisions.
When you are a beginner in managing financial resources, you must be thinking about how to make better financial decisions. Spending money on some essential things like food, clothing, and shelter is necessary but some types of expenditure like making big-ticket expenses can make your money disappear. Hence, it is important to plan personal finances to avoid financial risks.
One of the main reasons beginners find it difficult to establish investment or saving goals is that they don’t know what they should be doing with their money. Here are some things that beginners should keep in mind while making financial decisions-
- Allocate Money for Savings and Investment First
Allocating money for savings and investments first will help you create a solid financial foundation. A simple way to achieve this goal is depositing some money in savings and investing in financial instruments every month before spending. Experts recommend having six months’ worth of living expenses in savings so you will have money if you unexpectedly lose your job or have medical issues. Thus, by saving money, you can get financial protection, and by investing money, you can increase your wealth. Therefore, for every goal, you should have a separate savings account. Furthermore, online savings account opening has become very easy. There are neobanks in India that allow you to open an account conveniently.
- Plan for Medium-Term Goals
The next thing you need to do is to establish all your goals. After that, you need to plan on achieving medium-term goals. Once you achieve this goal, you’ll get a good idea of how to achieve financial goals.
- Create an Emergency Corpus
The best way to handle an emergency is to have a corpus ready. Hence, dealing with it can become easier. You should start by calculating the expense of your three biggest emergencies. For example, if you have a medical emergency, then you’ll have to pay for doctors’ fees which could run into lakhs. If you have a theft at your home or a legal dispute where you must fight a long case, then you can also be looking at a lot of money. It’s better to have a corpus set aside for such situations.
- Pay Off Debts
In order to start saving and investing, one of the first things you need to do is pay off all your debts, such as an education loan. By paying off debt quickly, you can reduce the interest amount that you must pay. When you pay off your loans, you’ll have more money for making investments and savings.
- Select the Right Investment Products
There are various investment instruments, like equities, mutual funds, etc. You can choose the investments based on your risk appetite, investment tenure, and investment goals.
Keep the aforementioned points in mind if you’re a beginner at making financial decisions.
