What do you mean by a healthy financial life? It means nothing more than fulfilling your dreams and ensuring a healthy lifestyle and financial security for your family. With a fair amount of financial planning, you can be financially healthy.
How do you become financially healthy? Are you planning a family vacation? Do you want to buy a car? Do you have a long list that you need to cross off in a set period of time? To make your dreams come true, you need to track your savings and expenses in an organized manner.
You should focus on developing a financial lifestyle to live a financially healthy life. Sound financial practices lead to financial stability. It’s never too late to learn how to manage your own money to achieve specific goals.
In general, it is vital to think about what we should be doing to enhance our financial health and behaviors. We’ll go over major personal finance guidelines that can help you get on track to attaining your financial objectives.
Start budgeting and define goals
It’s time to be realistic; the first step to determining your personal financial health is to note your financial goals. For example, how much money you are willing to spend on different activities is based on how much you earn. Maintaining an e-budget is the best tool to increase your chances of good financial health in the future.
At the beginning of each month, set a budget according to which free money is spent. Keep track of your expenses during the month and evaluate whether you have stuck to your budget at the end of the month. Start by writing down your income and all your expenses, then subtract your expenses from your income to see how much money you have left.
Knowing these details can help you better budget and plan your finances. Additionally, you can compare the numbers to your income to determine feasibility.
The idea is not to be too hard on yourself and focus on your most important financial goals. It’s time to create a budget that takes into account savings for retirement, children’s education or vacations, as well as everyday expenses. You can also change your budget from time to time. It’s the first step to maintaining healthy finances.
Calculate debt-to-income ratio
This step is essential for the assessment to better understand your financial situation and identify strengths and weaknesses:
Ask yourself the following questions: Has your debt increased or decreased over the past year compared to your income? If it has increased, try to pay off the total debt and stop going into debt, this is the key to getting out of debt for good.
Check on spending
It is natural to spend more if you earn more. Additionally, some expenses are unavoidable as your career and personal circumstances change over time. As a result, there is a corresponding increase in spending, known as lifestyle inflation. In the long run, lifestyle inflation can be harmful because it limits your potential to accumulate money. Every extra rupee you spend today means you’ll have less money later in life and in retirement.
That is why it is essential for a healthy financial life to have an overview of your expenses. Spend carefully by evaluating your needs and wants. The goal is to rationalize and accurately label expenses as needs and wants.
After the investment suitability questionnaire, you’ll know where you stand financially, and we’ve compiled a list of critical steps experts recommend to help you reach your goals and lead a healthy financial life.
Start investing
After evaluating your budget and defining your goals, it’s easy to allocate a significant portion of your income to investments. Appropriate allocation of debt and equity funds can help you achieve your financial goals. Additionally, you can invest in mutual fund schemes depending on your short-term and long-term goals. SIP can help you to be disciplined and invest regularly.
Financial protection through insurance
Insurance is your rainy day safety net. In addition, financial protection is vital to healthy financial habits. You can come up with different investment strategies to protect and secure yourself and your family. There are several insurance options to consider:
Term insurance
Health insurance
Before purchasing a policy, you can hire a professional financial advisor to guide you through policies and premiums. These plans can also help you with your money by prioritizing your goals, as focusing on one or two financial goals at a time is often more beneficial. For example, buying a home, saving for retirement, and paying for your children’s college education should all be part of your financial strategy.
While you may be tempted to save money by skipping insurance, keep in mind that it protects you from an accident that could put your finances in tatters.
Taxation
You can minimize your taxable income by adopting sensible investments. Section 80C and 80D are two popular sections for a tax deduction.
Section 80C – Under this section, you can claim a deduction of up to Rs 1.5 lakh for various investments and expenses. Some of the most popular tax saving tools are ELSS or Equity Linked Savings, these are Tax Saving Mutual Funds, Sukanya Samriddhi Yojana (SSY), 5 Year Savings FD, Life Insurance Premiums, and Children’s School Fees. Similarly, you can also claim health insurance premium rebates under section 80D. However, ELSS mutual funds are the best with a minimum lock-in of only 3 years.
Build a pension corpus amount
To be financially healthy, planning for retirement is essential. And as you know, retirement is expensive. So you need a corpus that will last you your entire life. Plus, with inflation, or the rise in prices of everyday goods and services, your expenses will be substantially higher in retirement than they are now. So, for example, if your monthly expenses are Rs 40,000 right now, they will be Rs 80,000 in 20 years if you want to continue with the same standard of living.
The goal is to generate income even when you are retired. As a result, you can choose an STP or SWP mutual fund strategy to ensure that you have an income during your retirement years.
Bottom line
Maintaining a healthy financial life is a slow process. However, following these steps will help you develop a healthy & financially better habit that will lead to financial security and help you achieve your goals.
