9 steps to be a #MoneyGoddess
A lot of us celebrate Navratri and also follow the rituals leading onto ensuring a healthy body with the detox. It is also a good time to visit your finances and run a quick financial detox. At Basis, we have a quick 9 step process for you to create a good financial plan. We break it down, day by day and guide you through this exercise.
Day 1 – Saving one day’s income
Right, let’s start with a super easy step. Can you save a day’s worth of income and set it apart as a habit? For instance, if your monthly income is ₹40,000, start saving ₹40,000 divided by 20(number of working days) = ₹2000. Sounds doable? Get started and set it aside as soon as your salary hits your account this month.
Day 2 – Quarterly expense
Let’s go from saving to spending. First, let’s find out how much we spend currently. What would your three months expenses look like? Simply calculate what you spend in 1 month and multiply it by 3. Include everything from your regular bills to impulse purchase of the last month.
Once you identify this amount, it is essential to put aside 3 months worth of expenses as an emergency fund. This can be maintained in your bank or ideally in a liquid mutual fund for easy access to the money.
Day 3 – Use a budget template
Did step 2 seem hard for you to put together? Where did my money go? Is that what you felt when you tried to calculate your monthly expenses? Budgeting is just telling your money where to go rather than wondering where it went. These are many tools you can use for the same or even with your standard excel sheet. Here’s our blog you can read about how to get your home budget right.
Day 4 – Calculate one day’s expense
You’d be surprised at how many of those small expenses that can be easily avoided add up to a lot. Ideally, follow this for at least 9 days. There might be days with little or no expenses and days when you have large expenses. It’s a good mechanism to help you realise the needed v/s impulse spends.
Day 5 – Fixed Deposits
After budgeting and tracking your money, you have some savings you can invest. But consider this, with fixed deposits you may be losing money than growing it. The average rate of fixed deposit is 6-7% and inflation is 6%. The interest that you earn on FD’s is also taxable based on your tax bracket. Be mindful of the impact of taxes and inflation when choosing your investment options.
Day 6 – Investment is not the same as insurance
Life Insurance – it is usually the first investment product we buy; on the insistence of a friend or family member. Research shows that a large number of Indians depend on it to fund their life goals, often without understanding what is the right amount they need to be insured for. Insurance and Investment are two completely different things for different purposes. Ideally,
1) Term insurance is taken to help ensure your family remains secure financially and can meet life goals in case of any unfortunate turn of events.
2) Investment products are meant to be focussed on growing your savings into funds to help you meet specific goals. Instead of buying a money-back policy which has investment + insurance you could be better off keeping the two separate.
The other insurance that makes sense is medical insurance for your self in addition to any coverage that you may be getting from an employer or spouse. In short, Insurance is a safety net and products such mutual funds are to invest your savings.
Day 7 – Know your tax slab.
It may not the one subject we want to think about, but one that pinches us the most when we see hard-earned money going away. Based on your income you fall in a certain tax bracket. These taxes not only have an impact on your income, but they also have an impact on your investments.
Day 8 – Set financial goals
Research shows that as humans we plan in silos and this behaviour is valid even with financial goals. Knowing what you want, how much it will cost and how long it will take you to build that corpus. These three elements are what constitute a financial goal. Whether it is creating a fund for travel, education or an emergency you can use the Basis app to help you calculate how much you need to save towards your financial goals.
Day 9 – Save. Invest. Repeat.
The first step in a successful investment plan is to save money. We recommend saving at least one day’s worth of income every month. To start, make a list of your monthly expenses. Identify costs you can live without or substitute for cheaper alternatives. Be honest with yourself. We aren’t saying cut every expense, just be more cognizant of living within your means.
Think of savings as if you are “paying yourself first”, a pseudo-tax you are withholding and growing for a future self. Therefore, move the investment as soon as you receive your paycheck, so you don’t have to worry about “accidentally” chipping into your savings.
The next item is to PROPERLY invest what you save each month.
You also need to revisit your goals and make changes in your plans as and when required. Investments are not just transactions. They are a deposit into your future. We hope these 9 steps have helped you do a complete audit of your finances and they serve as a good first step to building sound money management habits.
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